Academic

Galbiati & Vertova on How Laws Effect Behavior

By Lawrence Solum

Roberto Galbiati and Pietro Vertova (University of Bocconi - Centre for Research on the Public Sector (ECONPUBBLICA) , CNRS (umr EconomiX) Paris and University of Bocconi) have posted How Laws Affect Behaviour on SSRN.  Here is the abstract:

Laws and other formal rules are 'obligations backed by incentives'. We explore how laws work and affect behavior. Our analysis is based on a series of modified experimental public good games designed to isolate the impact of exogenously requested minimum contributions (obligations) from those of marginal incentives backing them. We find that obligations have a sizeable effect on cooperative behaviour even in absence of incentives. When non-binding incentives are introduced, requested contributions strongly sustain cooperation. Therefore, in contrast with cases in which incentives crowd out cooperative behaviour, in our experiments obligations and incentives are complements, jointly supporting high levels of contributions. Our results are consistent with the view that conformity to a rule is perceived as an obligation when it is backed by a system of incentives whose role in this case is not to modify the payoffs from material actions, but to give salience to the content of the rule. Moreover, we find that variations in obligations affect behaviour even when incentives are held constant. Finally, the effect of obligations on behaviour depends both on their impact on people's beliefs about others' contributions and on a direct effect of obligations on individuals' preferences for cooperation.

And from the paper:

The experimental design is based on a one-shot linear public good game9 with the peculiarity that subjects face an exogenous request of a minimum contribution: ?a minimum contribution of X tokens to the public good is required from each individual?. To answer Question 1 and Question 2 we first compare a baseline treatment in which we run a one shot public good game with a treatment in which we introduce the minimum contribution without any incentive structure. Then we modify the game by adding an incentive structure: an individual contributing less (more) than the minimum contribution is subject to a probabilistic penalty (reward). The peculiarity of such an incentive structure is that it is perfectly symmetric with respect to the minimum contribution: those contributing more than the requested expect a reward; those contributing less a sanction. By resorting to such a framework, we are able to keep the marginal incentives fixed across treatments. Thus the marginal incentives to contribute are independent of the minimum contribution. This aspect is crucial - our incentive structure is non-binding and marginal payoffs are independent of the minimum contribution. Hence, if we observe any difference in treatments with different minimum contributions, this cannot be imputed to the effect of incentives on payoffs but its justification should be sought elsewhere.

And:

We have found that obligations have a sizeable effect on cooperative behaviour even in absence of incentives. When non-binding incentives are introduced, requested contributions strongly sustain cooperation. This suggests that the content of the rule is perceived as an obligation when it is backed by a system of incentives whose main role in this case is not to modify the payoffs for material actions but to give salience to the content of the rule. Moreover, we have found that variations in obligations affect behaviour even when incentives are held constant. Furthermore, through a strategy based on the elicitation of beliefs and conditional contributions to the public good, we have found that the effect of obligations on behaviour depends not only on their impact on people?s beliefs about others? contributions, but also on their direct effect on individuals? preferences for cooperation.

I found this paper fascinating.  Highly recommended!

Full post as published by Legal Theory Blog on November 07, 2008 (boomark / email).