How Laws Affect Behaviour

Abstract

Laws and other formal rules are 'obligations backed by incentives'. We explore how laws work and affect behavior. Our analysis is based on a series of modified experimental public good games designed to isolate the impact of exogenously requested minimum contributions (obligations) from those of marginal incentives backing them. We find that obligations have a sizeable effect on cooperative behaviour even in absence of incentives. When non-binding incentives are introduced, requested contributions strongly sustain cooperation. Therefore, in contrast with cases in which incentives crowd out cooperative behaviour, in our experiments obligations and incentives are complements, jointly supporting high levels of contributions. Our results are consistent with the view that conformity to a rule is perceived as an obligation when it is backed by a system of incentives whose role in this case is not to modify the payoffs from material actions, but to give salience to the content of the rule. Moreover, we find that variations in obligations affect behaviour even when incentives are held constant. Finally, the effect of obligations on behaviour depends both on their impact on people's beliefs about others' contributions and on a direct effect of obligations on individuals' preferences for cooperation.

Keywords: Beliefs, Formal Rules, Incentives, Laws, Obligations, Preferences, Public Good Games

JEL Classification: C91, C92, H26, H41, K40