DP12128 Spillovers, Persistence and Learning: Institutions and the Dynamics of Cooperation

Author(s): Roberto Galbiati, Emeric Henry, Nicolas Jacquemet
Publication Date: July 2017
Keyword(s): Cooperation, experiments., Laws, learning, persistence of institutions, repeated games, social values, Spillovers
JEL(s): C73, C91, D02, K49, P16, Z1
Programme Areas: Public Economics, Industrial Organization, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12128

We study how cooperation-enforcing institutions dynamically affect values and behavior using a lab experiment designed to create individual specific histories of past institutional exposure. We show that the effect of past institutions is mostly due to "indirect" behavioral spillovers: facing penalties in the past increases partners' cooperation in the past, which in turn positively affects ones' own current behavior. We demonstrate that such indirect spillovers induce persistent effects of institutions. However, for interactions that occur early on, we find a negative effect of past enforcement due to differential learning under different enforcement institutions.