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The Hidden Effect of Rules: Behavioural consequences of Obligations

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  • Roberto Galbiati
  • Pietro Vertova

Abstract

How formal institutions (e.g. laws and public policies) affect human behaviour represents a crucial issue in economic analysis. Formal rules are defined as obligations backed by incentives. The economic literature has largely studied the role of material incentives in shaping individual behaviour. Yet, the role of obligations, i.e. what formal rules ask people to do or not to do, remains a black box. In this paper we run a public good game to analyze the behavioural effects of obligations. We find experimental evidence that obligations can affect cooperative behaviour both by coordinating conditional co-operators’ beliefs on others’ behaviour and by directly affecting social preferences. Our results shed a new light on the behavioural channels through which formal rules can affect individual behaviour and suggest the opportunity to broaden the scope of analysis in order to better understand the effects of institutions on economic outcomes.

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Bibliographic Info

Paper provided by D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Discussion Papers with number 18_2006.

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Date of creation: 01 Sep 2006
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Handle: RePEc:prt:dpaper:18_2006

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Related research

Keywords: Beliefs; Human Behaviour; Incentives; Obligations; Preferences; Public Good Game.;

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References

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  1. Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioral Effects of Minimum Wages," IZA Discussion Papers 1625, Institute for the Study of Labor (IZA).
  2. Falk, Armin & Kosfeld, Michael, 2004. "Distrust – The Hidden Cost of Control," IZA Discussion Papers 1203, Institute for the Study of Labor (IZA).
  3. Urs Fischbacher & Simon Gaechter & Ernst Fehr, . "Are People Conditionally Cooperative? Evidence from a Public Goods Experiment," IEW - Working Papers 016, Institute for Empirical Research in Economics - University of Zurich.
  4. Roland Bénabou & Jean Tirole, 2005. "Incentives and Prosocial Behavior," NBER Working Papers 11535, National Bureau of Economic Research, Inc.
  5. Gneezy, U. & Rustichini, A., 1998. "Pay Enough - Or Don't Pay at All," Discussion Paper 1998-57, Tilburg University, Center for Economic Research.
  6. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  7. Roberto Galbiati & Pietro Vertova, 2005. "Law and Behaviours in Social Dilemmas: Testing the Effect of Obligations on Cooperation," Labsi Experimental Economics Laboratory University of Siena 001, University of Siena.
  8. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "Does Culture Affect Economic Outcomes?," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 23-48, Spring.
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