The Corporate Legality Game. A Lab Experiment on the Impact of Policies, Frames and Information

50 Pages Posted: 11 Jul 2016  

Leonardo Becchetti

University of Rome, Tor Vergata - Faculty of Economics

Vittorio Pelligra

Universita di Cagliari - Department of Economics

Fiammetta Rossetti

University of Rome II

Date Written: July 11, 2016

Abstract

A company that pursues illicit practices (e.g., money laundering, tax dodging, corruption of public officials in procurement races, etc.) may underprice and crowd out competitors that behave legally, thereby eroding the public good of legality and integrity. Recently born institutional legality ratings tackle this problem by signaling companies with excellent legality record to consumers. Redistributive policy actions aimed to tax “defectors” (i.e. buyers of unrated products) in favor of “co-operators” (i.e. buyers of “legality-rated” products) may further enforce legality, and fight corruption. We analyze the impact of the legality-rating frame by means of a randomized experiment. The experiment accounts for the effects of fiscal policies that redistribute income from defectors to co-operators either in presence or in absence of the legality frame. Our findings document that the redistribution mechanism, the legality frame and the conformity information design contribute to alleviate the prisoner’s dilemma and generate significant deviations from the Nash Equilibrium.

Keywords: Analysis of Collective Decision-Making, Corruption, Laboratory Experiment, Redistribution, Conformity

JEL Classification: D7, D73, C92, H2.

Suggested Citation

Becchetti, Leonardo and Pelligra, Vittorio and Rossetti, Fiammetta, The Corporate Legality Game. A Lab Experiment on the Impact of Policies, Frames and Information (July 11, 2016). CEIS Working Paper No. 390. Available at SSRN: https://ssrn.com/abstract=2808004

Leonardo Becchetti (Contact Author)

University of Rome, Tor Vergata - Faculty of Economics ( email )

Via Columbia, 2
I-00133 Rome
Italy

Vittorio Pelligra

Universita di Cagliari - Department of Economics ( email )

V. S. Ignazio 17
Cagliari 09123, CA 09123
Italy

Fiammetta Rossetti

University of Rome II ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

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