Weak and Strong Formal Institutions in Resolving Social Dilemmas: Are They Double-Edged Swords?

Rati Mekvabishvili

MPRA Paper from University Library of Munich, Germany

Abstract: Many modern societies sustain large-scale cooperation among strangers and maintain the provision of public goods through well-functioning top-down formal institutions. However, it is important to understand the differences between weak and strong formal institutions in achieving two key goals in social dilemma situations: sustaining socially beneficial equilibria and fostering individual prosocial behavior. Additionally, we need to examine what happens to cooperation when the credibility of a formal institution is undermined and what occurs when it ceases to function. In this novel experiment of a repeated public goods game, we explore the effects of an exogenous centralized punishment mechanism with a low probability, which serves as a weak formal institution, and compare it with a strong formal institution. Our findings are encouraging, as they demonstrate that even under a weak formal institution, relatively high levels of cooperation can be sustained. However, irrespective of whether the punishment probability for free riders is low or high, once the punishment mechanism is removed, cooperation breaks down to a similarly low level. This suggests that regardless of the strength of the formal institution, there is an alike effect of crowding out an individual’s intrinsic motivation for cooperation. Therefore, the application of a centralized punishment mechanism as a policy tool to promote cooperation, regardless of its strength, appears to be a double-edged sword: socially beneficial outcome and intrinsically motivated cooperation hardly can be attained simultaneously

Keywords: formal institutions; public good; centralized punishment; crowding out; cooperation (search for similar items in EconPapers)
JEL-codes: C90 D02 H41 (search for similar items in EconPapers)
Date: 2023-12-20
New Economics Papers: this item is included in nep-cdm, nep-evo, nep-exp, nep-gth and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Behavioral Economics for Policy 2.7(2023): pp. 11-20

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:119659

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