Working Paper: CEPR ID: DP14807
Authors: Antonio Cabrales; Irma Clots Figueras; Roberto Hernn-Gonzalez; Praveen Kujal
Abstract: Formal or informal institutions have long been adopted by societies to protect against opportunistic behavior. However, we know very little about how these institutions are chosen and their impact on behavior. We experimentally investigate the demand for different levels of institutions that provide low to high levels of insurance and its subsequent impact on prosocial behavior. We conduct a large-scale online experiment where we add the possibility of purchasing insurance to safeguard against low reciprocity to the standard trust game. We compare two different mechanisms, the private (purchase) and the social (voting) choice of institutions. Whether voted or purchased, we find that there is demand for institutions in low trustworthiness groups, while high trustworthiness groups always demand lower levels of institutions. Lower levels of institutions are demanded when those who can benefit from opportunistic behavior, i.e. low trustworthiness individuals, can also vote for them. Importantly, the presence of insurance crowds out civic spirit even when subjects can choose the no insurance option: trustworthiness when formal institutions are available is lower than in their absence.
Keywords: institutions; trust; trustworthiness; voting; insurance
JEL Codes: C92; D02; D64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| presence of institutions (D02) | trustworthiness (Z13) |
| trustworthiness (Z13) | demand for institutional insurance (G52) |
| presence of insurance (G52) | civic spirit (Z18) |
| demand for institutions in low trustworthiness groups (O17) | demand for institutions in high trustworthiness groups (D02) |
| strategic voting behavior of low trustworthiness individuals (D72) | institutional framework manipulation (D02) |
| institutional choice (D02) | strategic behavior of low trustworthiness groups (Z13) |