Institutional Quality, Culture, and Norms of Cooperation: Evidence from a Behavioral Field Experiment
74 Pages Posted: 17 May 2013
Date Written: April 3, 2013
We design an experiment to examine the causal effect of legal institutional quality on informal norms of cooperation, and study the interaction of institutions and culture in sustaining economic exchange. 346 subjects in Italy and Kosovo play a market game under different and randomly allocated institutional treatments, which generate different incentives to behave honestly, preceded and followed by a non-contractible and non-enforceable trust game. Significant increases in individual trust and trustworthiness follow exposure to ‘better’ institutions. A reduction by one percentage point in the probability of facing a dishonest partner in the market game, which is induced by the quality of legal institutions, increases trust by 7 to 11%, and trustworthiness by 13 to 19%. This suggests that moral norms of cooperative behavior can follow improvements in formal institutional quality. Cultural origin, initial trust and trustworthiness influence opportunistic behavior in markets, but only in the absence of strong formal institutions.
Keywords: legal institutions, culture, trust, trustworthiness, markets, experimental methods
JEL Classification: K40, O17, Z10
Suggested Citation: Suggested Citation