Spillover Effects of Institutions on Cooperative Behavior, Preferences, and Beliefs

Abstract

Institutions are an important means for fostering prosocial behaviors, but in many contexts their scope is limited and they govern only a subset of all socially desirable acts. We study experimentally how the presence and nature of an institution that enforces prosocial behavior in one domain affects behavior in a similar but unregulated domain. Groups play two identical public good games, with cooperation institutionally enforced in one game. The presence of an institution in one game generally enhances cooperation in the other game, thus documenting a positive spillover effect. These indirect spillover effects are economically substantial, amounting up to 30 to 40 percent of the direct effect of institutions. In addition, we find evidence for sequential spillover effects, meaning that behavior is affected by the institution even after it is removed. We also observe that institutions enhance prosocial preferences and beliefs about others’ prosocial behavior, even toward strangers, suggesting that both factors are drivers of the observed spillover effects. We further explore other aspects influencing spillover effects, including characteristics of an institution, such as whether it is exogenously imposed or endogenously determined.

Keywords: Public Goods, Institutions, Spillover Effect, Social Preferences, Beliefs

JEL Classification: C920, D020, D720, H410