Inherited Institutions: Cooperation in the Light of Democratic Legitimacy

Abstract

We experimentally investigate whether the procedural history of a sanctioning institution affects cooperation in a social dilemma. Subjects inherit the institutional setting from a previous generation of subjects who either decided on the implementation of the institution democratically by majority vote or were exogenously assigned a setting. In order to isolate the impact of the voting procedure, no information about the cooperation history is provided. In line with existing empirical evidence, we observe that in the starting generation cooperation is higher (lower) with a democratically chosen (rejected) institution, as compared to the corresponding, randomly imposed setting. In the second generation, we find no positive effect of the democratic procedural history on cooperation when the institution is implemented. Yet, the vote-based rejection of the institution leads to (marginally) less cooperation in the second generation.

1. Introduction

Democracy can be valued in itself—for it can be seen as a normative ideal about how groups should make decisions. Yet, the fact that a decision-making process is democratic could also have empirical effects. Political economists, for example, have studied extensively how direct democratic decision making may affect policy choices and economic outcomes.¹ In addition, there is a long-standing behavioral claim, which has been traced back to the writings of Jean-Jacques Rousseau and Alexis de Tocqueville, that democratic participation per se leads to a higher degree of compliance with laws and regulations, thus enhancing the effectiveness of these institutions (e.g., Pateman 1970: 26 f., 43; Dal Bó et al. 2010: 2225 f.; Persson et al. 2013: 4). Starting from this behavioral effect, we ask whether democracy also matters in the long run. Does the fact that a previous generation used a democratic decision process improve the effectiveness of the institutional setting in later generations of citizens who did not take part in the institution-generating process? Hence, we do not try to answer the normative question “[w]hether one generation of men has a right to bind another” (Jefferson 1789), but the empirical question whether the assumed behavioral effects of democratic decision procedures spill over to later generations. Our results suggest that, while the democratic adoption of an institution does not per se increase an institution’s effectiveness in later generations, the democratic rejection of an institution might have negative long-term consequences.

To identify the behavioral effects of a democratic procedure independently of the outcomes, we use a laboratory experiment in which we vary the procedural history of the institutional environment in a controlled way. Building on the design in Tyran and Feld (2006), we study a centralized sanctioning institution that fines individuals for non-cooperative behavior in a public good game. Subjects are assigned to one of two generations and to one of two treatments. In the first treatment, group members in the first generation vote on the sanctioning institution, while in the second treatment a random mechanism determines the institutional setting. The sanctioning institution demands full contribution to the public good. If the subject contributes less than the social optimum, she is fined. However, the imposed fine is too low to deter a rational player. The second generation of subjects then inherits the institutional setting (whether the sanctioning institution exists or not) from the first generation. Second-generation subjects receive information about the institution-generating process in the previous generation before they play the public good game. Since in both treatments the institution is exogenously imposed on the groups in the second generation, we can exclude that our results in the second generation are influenced by the self-selection of (un-)cooperative types into an institutional setting with(out) punishment. Furthermore, we exclude social history effects by not providing any information on contributions in the first generation to the subjects in the second generation.

The effects of democratic decision-making on the current generation have been studied widely. Previous field experiments suggest that participation in the decision-making process shapes people’s evaluations of an institution. Direct democratic decision-making improves ratings of procedural fairness and satisfaction with policy outcomes (Olken 2010; Esaiasson et al. 2012; Persson et al. 2013). These results tie in with the vast psychological literature which reports that people’s participation is an important element of a fair procedure (e.g., Thibaut and Walker 1975; Lind and Tyler 1988) and that the procedural fairness of legal authorities can increase people’s compliance by enhancing the perceived legitimacy of the law (Tyler 2006). This research mostly relies on participants’ self-reported evaluations. Yet, economic experiments also show that a democratic institution-generating process influences individuals’ immediate behavioral reactions to the institution. Extending the experimental research on how cooperation in social dilemmas can be fostered (e.g., Ostrom et al. 1992), these experiments show that individuals behave more cooperatively if they chose a centralized sanctioning institution which fines non-cooperative behavior by majority vote, as opposed to an exogenous mechanism imposing an identical institution (Feld and Tyran 2002; Tyran and Feld 2006; Markussen et al. 2014). This finding holds if one controls for individuals’ institutional preferences (Dal Bó et al. 2010; Kamei 2016; but see Gallier 2017).

Interestingly, purely non-deterrent sanctions, that is, sanctions which are theoretically too low to prevent a homo economicus from free-riding, effectively enhance cooperation if they are democratically chosen (e.g., Feld and Tyran 2002; Tyran and Feld 2006). This is of high practical importance because non-deterrent centralized sanctioning schemes resembles many real-world legal sanctions (see Putterman et al. 2011). Tax laws, for example, usually prescribe sanctions for non-compliance, but the fines and the probability of being caught are too low to deter a rational tax payer (Andreoni et al. 1998; Feld and Tyran 2002). The positive effect of democratic decision-making on cooperation has also been confirmed for other types of sanctioning institutions, such as peer-to-peer punishment (Sutter et al. 2010; Markussen et al. 2014) and third-party punishment (Baldassarri and Grossman 2011; Grossman and Baldassarri 2012; Marcin et al. 2019).²

However, the experimental research also shows a potential disadvantage of democratic decision-making. Putting an institution to the vote does not necessarily need to result in its adoption. The majority of subjects could vote against the potentially cooperation-enhancing institution. In this case, a negative democracy effect occurs: cooperation turns out to be even lower if a sanctioning institution is democratically rejected, as compared to when it is rejected by a random mechanism (Feld and Tyran 2002; Tyran and Feld 2006). Hence, whether the institution-generating process allows for democratic participation or not has immediate consequences for people’s cooperative behavior.

All of these studies establish behavioral effects of democracy only for the current generation of individuals. Spillover effects of a democratic institution-generating process have so far only been studied within the individual. Kamei (2016) reports that participating in a democratic process also influences the cooperation of the same individual in a similar, yet non-democratic, setting. To the best of our knowledge, we are the first to provide experimental evidence on the effects of democratic decision-making on the cooperation of individuals who did not participate in the decision-making process themselves.

This is important because many laws and regulations seem to be rather persistent and many (legal) institutions are even designed to guide people’s behavior for long periods of time. For example, the grand civil law codifications, the French Code Civil and the German Bürgerliches Gesetzbuch, date from 1804 and 1900, respectively. And while there have been modifications over time, many provisions stand unchanged. For The Netherlands, De Jong and Herweijer (2004) report that statutes have lasted for 40 years on average (cited in Ranchordás 2014: 175). Another type of legal provisions intentionally drafted to remain in force for several generations are written constitutions. Elkins et al. (2009: 137) calculate that, on average, national constitutions last approximately 21 years in democratic countries and only 15 years in countries with an authoritarian regime. Many constitutions, however, persist much longer. The US Constitution, for example, has already been in force for more than 200 years. Similar to the legal arena, in organizations many rules and regulations also exceed the life span of the current staff. The set of rules is not reconsidered each time new people are hired, but is automatically passed on to the next generation. Conceptually, the same holds for regulative proposals that were democratically rejected. If this happens, the proposal will most likely not be put to the vote again any time soon after. Hence, many institutions remain in force for more than one generation of citizens and, as a consequence, many institutional choices, even though initially democratic, have not been made by the people who now live with them.

Of course, later generations can in principle change or abolish any existing provision or enact a new one. Nonetheless, they very often refrain from doing so. Calabresi (1982), for instance, points to the problem that statutes even remain in force when their content is outdated. Moreover, in many cases, not changing the law seems reasonable. If the existing legal regime by and large fulfills the regulatory purpose, one should not re-enact the same law. Making only minor adjustments to a provision may be inefficient due to high bureaucratic or political costs. If the first generation has chosen a policy that is also adequate for the later generation, there may be no need to overturn the initial choice.

For the first generation, our results confirm the positive and negative effects of democratic decision-making on cooperation: Compared to an exogenous choice mechanism, contributions to the public good are significantly higher when the institutional setting is democratically implemented and significantly lower when the institution is democratically rejected. In the second generation, however, cooperation seems not to be influenced by the procedural history if the sanctioning institution is adopted. When the institution is democratically rejected by the first generation, though, we observe that a (marginally) significant negative effect of democracy on cooperation also occurs in the second generation.

Obviously, our experimental setting in the laboratory comes with a high degree of abstraction. Thus, as with every laboratory study, external validity is an issue. We discuss several limitations to our design choices in Section 6. Yet, as far as one is willing to extrapolate from our experiment to the societal level, our findings suggest that people’s direct participation might be important for cooperation-enhancing effects to occur: the democratic genesis of an institution in a previous generation does not seem to enhance the effectiveness of the institution in a later generation per se. In contrast, the democratic rejection of a cooperation-enhancing institution might have negative long-term consequences and reduce cooperation even below the status quo ante.

The paper is structured as follows. Sections 2 and 3 present the experimental design and procedures. Our predictions are discussed in Section 4, and Section 5 states the results. Section 6 discusses limitations and possible extensions of our study and concludes.

2. Design

Whether a pair of matched groups plays the standard public good game or the public good game with the sanctioning institution is determined in the first generation. Groups in the second generation always play the same game as their matched group in the first generation. Consequently, subjects’ endowments and payoff functions are identical in both generations.

Each pair of groups is randomly assigned either to the treatment with an endogenous choice about the sanctioning institution (Endo) or to the treatment where the institutional setting is exogenously determined (Exo). In the Endo treatment, group members in the first generation vote on whether they want to adopt the sanctioning institution. If the majority of group members (2 or 3) vote in favor of the sanctioning scheme, the group subsequently plays the public good game with the sanctioning institution; otherwise, the group plays the standard public good game. Subjects learn whether the sanctioning institution is in effect and subsequently make their allocation decision. In the Exo treatment, instead of the majority vote, a random mechanism determines whether the sanctioning institution exists. Figure 1 shows the sequence of the experiment which results in four possible treatment conditions: EndoRule, EndoNoRule, ExoRule, and ExoNoRule. In EndoRule, the majority of group members in the first generation voted in favor of the sanctioning institution, which is subsequently also implemented in the second generation. In EndoNoRule, the majority of group members in the first generation voted against the institution, so that the second generation also plays the standard public good game. The treatment conditions ExoRule and ExoNoRule are defined in the same way, the only difference being that the vote is replaced by a random draw.

As described, groups in the second generation make their contributions in the same setting as their matched group in the first generation. Before they play the public good game, second-generation subjects learn whether the decision on the sanctioning institution in the first generation was made by vote or by a random mechanism. If a vote took place, subjects in the second generation do not learn the exact voting outcome, but only whether the majority voted in favor or disfavor of the sanctioning institution. Subjects in the second generation are not informed about the actual contributions in their matched group in the first generation. This allows us to focus on the effect of the institution-generating process, independently of the actual contributions in the first generation.

In real-world settings, people often know that democratic and non-democratic decision-making procedures exist. Further, we presume that people would also compare themselves to people in a different institutional setting. Therefore, in our experiment, all subjects know that groups are either assigned to the Endo or the Exo treatment. We provide this information to make sure that in both treatments subjects in the second generation are aware that some groups are eligible to vote while others are not.

After subjects have made their decisions in the public good game, we implement a post-experimental questionnaire. We elicit subjects’ beliefs about the sum of their other group members’ contributions and about the sum of contributions in their matched group of the other generation. Subjects earn an additional four points for each correct belief. Additionally, they are asked to indicate their non-incentivized beliefs about the percentage of first-generation groups in the experiment who voted in favor of the sanctioning rule. In order to understand how subjects in the second generation perceive the institution-generating process, we further elicit how important it was (would have been) for subjects eligible (not eligible) to vote to decide about the sanctioning institution themselves, how satisfied they are with the way the decision about the sanctioning institution was made in their own group and in the matched group of the other generation, and how much they perceive the sanctioning institution to be an appropriate measure to raise contributions to the public good.⁴

3. Procedures

The computerized experiment was conducted in the EconLab at Bonn University. Subjects were recruited online with the system hroot (Bock et al. 2014) from the subject pool of the laboratory. In total, 564 subjects participated in 25 sessions that included either 18 or 24 subjects, depending on the show-up rate. They were seated in separate cubicles and could not see the other participants during the experiment. In sessions with 24 participants, half of the subjects were assigned to the Endo treatment and the other half to the Exo treatment. In sessions with 18 participants, 12 subjects were assigned to the Endo treatment and 6 to the Exo treatment. The observations per treatment condition are reported in Table 1.

Subjects had a mean age of 23 years and with few exceptions were university students from diverse fields of studies, such as economics (28%), natural sciences (20%), law and political studies (17%), mathematics and informatics (7%), languages (6%), and psychology and medicine (5%). The sample was roughly gender-balanced: 54% of the subjects were female. Earnings in the experiment were expressed in points, which were converted into Euro at a rate of 0.25 Euro per point at the end of the experiment. Average earnings were 10.26 Euro, including a 4 Euro show-up fee. The software implementation was done with z-Tree (Fischbacher 2007). Experimental instructions consisted of two parts, which were sequentially provided to the subjects on paper. The first part described the standard public good game, while the second part introduced the sanctioning institution and the group assignment procedure. To ensure that the participants had understood the instructions, each part was followed by a set of control questions. The experiment only started after all subjects had correctly answered all questions. At the end of the experiment, subjects were asked to fill in their demographic characteristics. Appendix B contains a transcript of the instructions, translated from German. A typical session lasted approximately 60 min.⁵

4. Predictions

Assuming that individuals are rational and selfish, we should observe no contributions to the public good in either generation, irrespective of whether the sanctioning institution exists or not. The sanction for contributions below the social optimum is too low to deter a selfish individual from free-riding. Plenty of empirical evidence, however, suggests that people contribute to public goods. They do so conditional on their beliefs that others exhibit the same behavior (see Chaudhuri [2011] for an overview of possible motivations), they may want to behave in line with their personal contribution norm in order to avoid emotional discomfort (Bowles and Gintis 2006), they may experience a “warm glow” when doing something beneficial for the group (Andreoni 1990), or they could have a preference for efficiency (Charness and Rabin 2002).

On top of that, research has shown that the way a centralized institution that sanctions free-riding is adopted (or rejected) also affects contributions (e.g., Feld and Tyran 2002; Tyran and Feld 2006; Dal Bó et al. 2010; Markussen et al. 2014; Kamei 2016). Three channels have been proposed to explain the effect of a democratic voting procedure on those individuals affected by the institutional outcome: signaling, selection, and a generic “endogeneity premium” (Dal Bó et al. 2010; see also Tyran and Feld 2006).

First, the voting outcome could convey a cooperation signal. A majority vote in favor of a potentially cooperation-enhancing institution may signal that individuals want to cooperate. If subjects are conditionally cooperative, that is, if their willingness to cooperate is positively correlated with their beliefs about the others’ cooperation behavior, they may increase their contributions to the public good when the institution is adopted (signaling effect).

Secondly, (un-)cooperative types may self-select into a particular institutional environment. Cooperative types are more likely to vote in favor of an institution that sanctions free-riding than uncooperative types. Consequently, cooperative types end up in a setting with a sanctioning institution more often when a democratic procedure instead of a random mechanism determines the institutional setting (selection effect).

Thirdly, endogeneity could have an effect per se. When only considering individuals who are in favor of implementing the sanctioning institution and who know of each other’s institutional preferences (which allows the elimination of the first two channels), cooperation is still found to be higher for a given punishment level when a democratic procedure has determined the institutional setting (Dal Bó et al. 2010; Kamei 2016; Marcin et al. 2019; but see Gallier 2017). High democratic legitimacy of the sanctioning institution because of one’s own participation in the process may result in increased adherence to an apparent cooperation norm. If subjects anticipate the “endogeneity premium” for their group members, the effect may be reinforced through conditional cooperation.

All three channels mentioned above predict a higher contribution level when the implementation of the sanctioning institution is based on a vote among the individuals affected by the institution instead of a random mechanism. For the first generation, we thus expect to replicate the previously reported effects of democratic participation and predict that contributions are higher if the sanctioning institution is democratically implemented (EndoRule), as compared to exogenously imposed (ExoRule) [P1a].

If subjects vote against the sanctioning institution, signaling and selection work in the opposite direction. Non-cooperative subjects may self-select into an environment without sanctions in the endogenous choice setting. This could decrease cooperation, compared to an exogenous setting where cooperative and non-cooperative subjects are equally likely to end up in an environment without the sanctioning institution. Further, the rejection may provide a signal for the subjects’ unwillingness to cooperate. If, for example, a law that prescribes higher punishment for tax fraud is collectively rejected, this will most likely influence what people think about the others’ tax compliance. Hence, this may lead to lower contributions from conditional cooperators. In principle, the rejection of the institution might also receive democratic legitimacy because of the endogenous decision process. Those who would have contributed independently of the sanctioning institution could feel bound to adhere to an apparent non-cooperation norm which comes with the rejection of the institution. Yet, in a related setting, Dal Bó et al. (2010) do not find a negative effect of a democratic process which results in the rejection of the institution that goes beyond selection and signaling. In line with the findings in Tyran and Feld (2006) and Feld and Tyran (2002), we predict that, in the first generation, cooperation is lower if the institution is rejected based on the subjects’ votes (EndoNoRule) than if a random mechanism determines not to implement the institution (ExoNoRule) [P1b].

Irrespective of the treatment, subjects in the second generation do not participate in the institution-generating process. The institutional setting is always exogenously imposed on them. Hence, any selection effects are excluded by design. Moreover, the subjects in both treatments do not receive signals about the cooperativeness of their own group members. The only difference between the treatments is the information about the procedural history of the institutional setting. In the Endo treatment, second-generation subjects learn that their matched group in the first generation voted on the institutional setting and that the voting outcome also determined whether the institution was implemented in their own group. In the Exo treatment, second-generation subjects find out that the institutional setting was determined by a random draw in the first generation and that the outcome of the random draw will be subsequently implemented in their own group. Subjects in the Endo treatment thus receive a signal about the vote outcome that they may choose to interpret as a signal about the cooperativeness in the first generation, while in the Exo treatment no such signal is available.

Previous experiments suggest that observing the behavior of unrelated individuals in the same decision environment (social history) affects behavior (e.g., Berg et al. 1995; Krupka and Weber 2009; Gürerk 2013; Engel et al. 2014).⁶ In particular, Engel et al. (2014) investigate contributions in a repeated public good game with punishment and counter-punishment. They show that providing information about uncooperative behavior of other groups reduces the individuals’ contributions, compared to a setting with no information. Positive information about the cooperation of others, however, does not increase contributions.⁷

In our experiment, second-generation subjects in the Endo treatment are not informed about the social history—the actual contributions in the first generation—but they learn the voting outcome. Previous studies show that the voting outcome in the own group influences the subjects’ beliefs about the contributions of the other members of their group (e.g., Tyran and Feld 2006). In a similar vein, subjects in the second generation could use the voting outcome in the first generation as a proxy to assess the cooperativeness of their own group. Lastly, also in the second generation, endogeneity per se may influence contributions. If the institution is adopted by majority vote, subjects in the second generation may perceive it as more legitimate, despite the fact that they could not participate in the vote. Generally, fair decision procedures are found to enhance the satisfaction with and the acceptance of decisions (e.g., Thibaut and Walker 1975; Lind and Tyler 1988) and can increase the general compliance with laws and regulations (Tyler 2006). Moreover, field studies suggest that the perceived legitimacy of an institution can increase even when people did not experience the fair procedure themselves, but rather observed it from a distance (see, e.g., Tyler and Mitchell 1994; Grimes 2006). If in our experimental setting individuals evaluate the democratic process as more fair, they may thus be more inclined to behave in line with the cooperation norm that is promoted by the implementation of the sanctioning institution, despite of not having been actively involved in the process.

Extrapolating from the findings discussed above, our predictions for the effect of the implemented sanctioning institution on cooperation levels in the second generation are ambiguous. While previous research partly suggests that there might be no positive (signaling) effect in the second generation (i.e., cooperation levels in EndoRule and ExoRule will be the same), a positive effect could—as discussed due to a small positive signaling effect or a pure endogeneity effect—nevertheless occur (i.e., contributions in EndoRule will be higher than in ExoRule) [P2a]. When the sanctioning institution does not exist, however, cooperation should be lower in EndoNoRule than in ExoNoRule in the second generation [P2b].

5. Results

We first summarize the subjects’ voting behavior in the Endo treatment of the first generation. Then we report the immediate effects of the institution-generating process on the public good provision in the first generation. Subsequently, we state our results on the effects of the procedural history on the subjects’ behavior in the second generation.

5.1 Generation 1

Among the first-generation subjects in the Endo treatment, 55% vote in favor of the sanctioning institution.⁸ While 70% of the men cast a supportive vote, only 43% of the women do so. A test of proportions reveals that the percentage of women supporting the sanctioning institution is significantly smaller than the percentage of men (p = 0.001). This finding is in line with previous research which reports gender differences in preferences for sanctioning institutions in social dilemmas (Putterman et al. 2011; Kamei 2016).⁹

Average contributions to the public good and the corresponding 95% confidence intervals (CIs) are depicted in Figure 2 separately for the two treatments and the two institutional settings. Aggregating over all conditions, subjects contribute on average 54% of their endowment to the public good, with a majority of choices at the extremes of the zero or the maximum contribution.

Supporting our first prediction, we observe that, when the sanctioning institution is implemented, contributions are higher if the institution-generating process is endogenous rather than exogenous. On average, subjects contribute 14.68 points in EndoRule and 11.44 points in ExoRule (Mann–Whitney [henceforth MW] test, p = 0.016).¹⁰ This result is confirmed by the regression analyses displayed in Table 2. Model (1) regresses contributions only on the treatment dummy, Model (2) adds controls for subjects’ demographics (age, gender, field of study), and Model (3) additionally includes the subjects’ beliefs about the average contribution of the other two group members. For these models, as well as for all following regression models, we cluster standard errors at the session level.¹¹ The treatment variable Endo is positive and significant in all of the reported specifications, suggesting that an endogeneous choice of the sanctioning institution significantly increases the cooperation of subjects.

• Result 1. Contributions are significantly higher with a democratically chosen sanctioning institution than with an exogenously imposed institution.

We further find that, when the sanctioning institution is rejected, a democratic decision procedure has detrimental effects on cooperation. Average contributions to the public good in ExoNoRule are almost twice as high as in EndoNoRule with 9.5 and 4.86 points, respectively (p = 0.002, MW test). The negative and significant treatment coefficients in case the sanctioning institution was rejected, which are displayed in Table 2, Models (4)–(6), confirm the negative democracy effect on cooperation.

• Result 2. Contributions are significantly lower if the sanctioning institution is endogenously rejected, as compared to when a random mechanism determines that it is not implemented.

Furthermore, we analyze whether a change in subjects’ beliefs about the others’ cooperation behavior causes the observed treatment effects on cooperation. First, we generally find strong evidence for conditionally cooperative behavior provided by a Spearman correlation coefficient of 0.64 for beliefs and contributions among all first-generation subjects: the more subjects expect others to contribute, the more they contribute themselves (p = 0.000). Secondly, Table 2 shows that a change in subjects’ beliefs explains a considerable part of the treatment effects. Even after the inclusion of the beliefs in the regression equation, the treatment coefficients remain (marginally) significant, both when the sanctioning institution is adopted (Model (3)) and when the institution is rejected (Model (6)). We conclude from this that apart from a “signaling effect,” the two remaining channels, selection and the “endogeneity premium,” might also play a role.

In a next step, we thus study whether (un-)cooperative types self-select into the environment with(out) sanctions. To test this, we divide first-generation subjects in the Endo treatment into two groups: Those who voted in favor of the sanctioning institution (pro-voters) and those who voted against it (contra-voters). As stated before, pro-voters are more likely to play the public good game with the sanctioning institution than contra-voters. In our experiment, approximately 86% of the pro-voters, but only 33% of the contra-voters end up in EndoRule. To show that selection causes part of the treatment differences, we would have to establish that pro- and contra-voters actually behave differently in a given institutional setting. Yet, while pro-voters descriptively contribute more in EndoRule than contra-voters (15.35 vs. 12.5), this difference is not statistically significant (N = 93, p = 0.132, MW test). In EndoNoRule, the two groups contribute similar amounts (5.17 versus 4.78, N = 57, p = 0.943, MW test). The fact that contribution rates are not significantly different between the two voter types is in line with the findings in Tyran and Feld (2006).¹²

Lastly, we investigate the effectiveness of the sanctioning institution in increasing contributions. We compare the contributions in the settings with and without the sanctioning institution conditional on a particular institution-generating process. We treat ExoNoRule as the baseline of the standard public good game without sanctions. While the mere existence of the non-deterrent sanctioning institution in ExoRule does not significantly improve contributions to the public good (ExoRule vs. ExoNoRule, p = 0.250, MW test), contributions in EndoRule are significantly higher than in ExoNoRule (p = 0.000, MW test).

5.2 Generation 2

For the subjects of the second generation, the institutional setting in which they interact is exogenously determined. Subjects are not informed about the contribution behavior of their predecessors. Yet, they know the procedural history of the institutional setting. In the Endo treatment, the procedural history also contains information about the institutional preferences of the subjects in the first generation. Average contributions and CIs are depicted in Figure 3 for all four conditions. Aggregating over the four conditions subjects contribute on average 47% of their endowment to the public good; similar to the first generation a majority of choices are at the extremes of a zero or a maximum contribution.

In order to determine whether the reported positive and negative endogeneity effects carry over to the second generation, we conduct further regression analyses in which the treatment dummy and a dummy for the generation are interacted (see Table 3). Model (1) regresses contributions on a generation dummy, a treatment dummy, and their interaction. Model (2) additionally includes subjects’ demographics (age, gender, field of study). Both specifications show that when the sanctioning institution is implemented, the effects of the voting procedure on contributions are significantly different between the second generation and the first generation. The size and the direction of the interaction coefficients reveal that the positive endogeneity effect present in the first generation is non-existent in the second generation. For the negative effect of an endogenous rejection of the sanctioning institution, however, the interaction term indicates no significant difference between generations in Model (4), and although Model (3) displays a marginally significant difference, the coefficients of the treatment dummy and the interaction imply that a considerable part of the negative effect in the first generation still remains in the second generation. Hence, while the endogenous process does not seem to carry over to the second generation when the sanctioning institution is implemented, we find evidence that the negative effect persists in the second generation in case the institution is rejected.

We now have a closer look at the contributions in the second generation. On average, subjects contribute 10.88 in EndoRule and 11.59 in ExoRule (p = 0.633, MW test). In none of the regression models (1)–(3) presented in Table 4 is the treatment dummy significant when the sanctioning rule exists. As in the equivalent Table 2 for the first generation, Model (1) regresses contributions only on the treatment dummy, Model (2) adds controls for subjects’ demographics, and Model (3) additionally includes subjects’ beliefs about the average contribution of the other two group members.

• Result 3. Inheriting a sanctioning institution with a democratic procedural history does not enhance cooperation, as compared to inheriting an exogenously imposed institution.

In EndoNoRule, subjects contribute on average 6.07, and 7.88 in ExoNoRule (p = 0.105, MW test). Table 4 shows that the negative treatment effect is (marginally) significant (Models (4)–(6)).

• Result 4. Contributions are significantly lower if the inherited sanctioning institution was endogenously rejected by the previous generation than if the rejection was exogenous.

Result 3 suggests that second-generation subjects neither react to the positive cooperation signal of the voting outcome in the first generation (or do not perceive the voting outcome as a cooperative signal in the first place), nor does the democratic procedure per se increase contributions in the second generation. The negative endogeneity effect in the second generation (Result 4) could, however, be driven by a conditionally uncooperative reaction to the non-cooperative signal of the first generation. Note that subjects receive no signal about the cooperativeness of their group members, but only a signal about the cooperativeness of their matched first-generation group from which they might extrapolate to their own group. Therefore, we first assess whether second-generation subjects make this extrapolation. In all four treatment conditions, we observe that the subjects’ beliefs about the average contribution of the other two group members in the own group are highly correlated with those about the average contribution of the three group members in the matched group of the first generation (Spearman’s Rho $≥$ 0.58, p = 0.000). Further, subjects in the Endo treatment tend to generalize from the voting outcome in their matched first-generation group to the expected voting preferences among all first-generation subjects. Our questionnaire reveals that subjects in EndoRule have significantly higher beliefs about the percentage of groups in the first generation that adopted the sanctioning institution than subjects in ExoRule (p = 0.000, MW test). Accordingly, subjects in EndoNoRule have significantly lower beliefs than subjects in ExoNoRule (p = 0.002, MW test).

As in the first generation, in the second generation we also find support that cooperation is conditional on subjects’ beliefs about the average contribution of the other two group members. The Spearman correlation coefficient for average beliefs and contributions is 0.57 (p = 0.000). Moreover, the regression analyses show that the subjects’ beliefs indeed explain parts of the negative effect in the second generation (Table 4, Model (6)). Yet, in this model, the treatment dummy also remains negative and significant. This indicates that, apart from subjects’ beliefs, other channels may partly cause the treatment effect. Because selection effects are excluded in the second generation, the endogenous choice might have an effect per se, that is, subjects might desire to adhere to an apparent non-cooperation norm expressed by the vote outcome.

Concerning the effectiveness of the sanctioning institution in the second generation, unlike in the first generation, contributions in ExoRule are significantly higher than those in ExoNoRule (p = 0.044, MW test) and contributions in EndoRule are not statistically different from those in ExoNoRule (p = 0.137, MW test).

As pointed out in Section 2, all subjects receive information about all treatment conditions. Therefore, all subjects know that some groups are eligible to vote, while others are not. In the Endo treatment, second-generation subjects are matched with a group of first-generation subjects who could vote, while in the Exo treatment subjects in both generations were not allowed to vote. If second-generation subjects compare themselves mainly to their matched group in the first generation, subjects in the Endo treatment could feel unfairly treated and could feel a stronger desire to have the chance to vote themselves than the subjects in the Exo treatment. A strong, but unfulfilled, voting desire could create dissatisfaction, which might in turn influence cooperation. This could explain why we do not observe a positive effect in case the institution is democratically adopted. To exclude this potential channel, we identify whether the subjects’ judgments about their vote ineligibility in the second generation differ between treatments. We elicited the subjects’ evaluation of the procedure with two measures in the post-experimental questionnaire. First, we asked subjects how important it would have been for them to vote on the sanctioning institution themselves. Secondly, we asked how satisfied they were with the process that determined the institutional setting for their group. We observe a significant correlation between the two measures: a high voting desire is associated with low satisfaction (Spearman’s Rho =−0.43, p = 0.000). Yet, the voting desire is not statistically different between EndoRule and ExoRule (p = 0.355, MW test) and between EndoNoRule and ExoNoRule (p = 0.826, MW test). There is also no significant correlation between the subjects’ voting desire and contribution levels (Spearman’s Rho = 0.00, p = 0.936). While the satisfaction measure is positively correlated with contributions (Spearman’s Rho = 0.13, p = 0.030), differences in satisfaction between EndoRule/ExoRule and EndoNoRule/ExoNoRule are insignificant (p = 0.168 and p = 0.906, respectively, MW tests).¹³ We conclude that our design does not trigger a higher voting desire or higher dissatisfaction in the Endo treatment than in the Exo treatment.

6. Discussion and Conclusion

Our experimental results suggest that the mere fact that a sanctioning institution was initially adopted through a democratic process might not be of major importance for people’s cooperation if these people did not participate in the institution-generating process themselves. The procedural history of the institution may be relevant, however, when a cooperation-enhancing institution is rejected: it might decrease cooperation in later generations. Our findings suggest that the renewal of democratic legitimacy may be necessary to reap the direct behavioral benefits of democratic decision-making in the long run.

The observation that subjects in the second generation seem to react to the democratic rejection of a cooperation-enhancing rule in the previous generation, but not to the democratic adoption of the same rule, may be related to the general psychological finding that “bad is stronger than good”—meaning that the effects of a negative event will be bigger than the effects of a comparable positive event (Baumeister et al. 2001; Rozin and Royzman 2001). One exemplification of this can be seen in the behavioral endowment effect (Kahneman et al. 1991) where a “negative” loss of an object is associated with a higher prize than a “positive” gain of the same object (Rozin and Royzman 2001: 298 f., on loss aversion and the “negativity bias”). Baumeister et al. (2001) and Rozin and Royzman (2001) identify the “negativity bias” in a wide range of domains. Both papers present the evolutionary argument that such a bias may be adaptive as an individual who is more sensitive to negative events would be more likely to prevent extinction. Moreover, they argue that already one bad event suffices to destroy the benefits of several good events. In our experiment, subjects' cooperation can be exploited if only one group member is not cooperative, while for cooperation to succeed, all group members’ contributions are needed. In the second generation, the negative signal may be strong enough to let them fear that at least one group member might not contribute, while the positive signal may not be sufficient to make them believe that both other group members would contribute.

Our study was designed to identify clearly the behavioral effect of the institution-generating process on public good contributions. Therefore, some restrictions of our design need to be considered when one tries to extrapolate to real-world settings.

First, we chose to exclude social history effects by not providing explicit information about cooperation behavior in the first generation to the subjects in the second generation. This allows us to identify the effects of the procedural history apart from the social history, that is, potential effects which observing previous contributions could have. However, people usually observe how the previous generation succeeded in the existing institutional setting. As cooperation in the first generation is higher with an endogenous institution, social history effects could also lead to higher contributions in later generations. Thus, it is plausible that democratic decision-making has an indirect effect on later generations, as it affects the social history later generations are confronted with. Likewise, the negative effect of voting may even be stronger in the second generation if information about low cooperation levels in the first generation has been provided.

Secondly, we study a one-shot interaction to exclude subjects’ concerns about future behavior and payoffs. While many real-world interactions are quasi one-shot, many others are repeated. Effects that are initially small may increase the more often individuals interact. Engel et al. (2014) even report the surprising result that a positive social history only has a long-term effect on contributions in a repeated public good game and no effect at all in the first interaction. It may therefore be possible for the effects of the procedural history to arise and become stronger over time.

Finally, in the interest of clear identification, we totally separate generations, that is, we have two different groups of subjects in the two generations.¹⁴ Hence, we do not investigate the situation in which the two generations overlap, which in reality they obviously do in part. A set-up with overlapping generations would allow for newcomers to adapt to the behavior of their peers. Since a democratically chosen institution increases cooperation in the first generation, conditionally cooperative newcomers may increase their own contributions. If senior members drop out successively, cooperation could still remain higher even when all members who initially voted on the institution have left the group.

With our study we present an initial step toward testing the effects of a democratic procedural history for people’s compliance and cooperation, independent of the social history. While our experiment is a rigorous empirical test for the intergenerational effect of democratic decision procedures on cooperation, we leave it to future research to investigate cooperation levels when the aforementioned restrictions are relaxed. Moreover, given our interpretation that democratic institutions might be in constant need of legitimization, future studies might determine through which channels other than a vote an existing institution could be legitimized.

Supplementary Material

Supplementary material is available at Journal of Law, Economics, & Organization online.

Funding

Financial support by the Max Planck Institute for Research on Collective Goods is gratefully acknowledged. F.T. is furthermore grateful for the funding from the Australian Research Council (Linkage Project 160100506).

Conflict of interest statement. None declared.

We thank Christoph Engel, Isabel Marcin, Alexander Morell, and Pedro Robalo for helpful comments on an earlier version; Frederick Göhsl for research assistance; and Brian Cooper for language help.

Appendix A: Additional Tables

Appendix B: Instructions

You are about to take part in an economic experiment. Please read the following instructions carefully. You can earn money in this experiment. Your earnings depend on your decisions and the decisions made by the other participants. At the end of the experiment, all sums of money which you have earned through your decisions will be added up and paid to you in cash immediately. In addition, you will receive a flat fee of 4 euro for showing up on time.

All participants will receive exactly the same information.

No talking is permitted during the experiment. Disobeying this rule will lead to exclusion from the experiment and from all payments. If you have any questions, please ask us by raising your hand. A member of our team will come to your seat.

On the following pages, we will describe the exact procedure of the experiment.

At the beginning of the experiment, you are randomly divided into groups of three members each. You make your decisions within this group of three.

Each participant starts off with 20 points. These 20 points are referred to from now as the points endowment. Your task is to divide the 20 points between a group account and a private account.

In making your decision, you must use up all 20 points. In other words, the points you place in the group account and the private account must add up to 20.

You will receive an income from both your group account and your private account. Your income from both accounts is calculated in different ways.

Your points income from the private account depends on how many of your 20 points you have placed in your private account. You will receive an income from your private account which corresponds exactly to the number of points invested. So if, for instance, you have placed 20 points in your private account, you will receive an income from your private account of 20 points. If you have invested 6 points, your income from your private account will be 6 points. Nobody apart from you receives an income from your private account.

Your points income from the group account depends not only on how many points you yourself have placed in the group account, but also on how many points the other two group members have placed in the group account. Your income from the group account is calculated according to the following formula:

In other words, the income from the group account also depends on how many points in total were placed in the group account by all group members.

The income of the other two group members from the group account is calculated according to the same formula. In other words, all group members draw the same income from the group account.

If, for example, the points placed in the group account by all group members add up to 60 points, then each group member receives an income from the group account of 30 points (60 points × 0.5). If the points placed in the group account by all group members add up to 10 points, then each group member receives an income from the group account of 5 points (10 points × 0.5).

The difference between the private and the group account becomes clear if we see what happens with each individual point that you can place either in the private account or the group account.

• For each point you place in the private account, your income from the private account increases by 1 point.

• For each point you place in the group account, the sum of the points from the group account increases by 1 point. For each point that you place in the group account, you therefore receive an income of 0.5 points (1 point× 0.5). However, the income of the other two group members also increases by 0.5 points each. The total income of your group of three hence increases by 1.5 points. With every point you place in the group account, therefore, you not only earn 0.5 points, but the other two group members also earn 0.5 points each. In turn, you also profit from the points the two other group members place in the group account. For each point that another group member places in the group account, you earn 0.5 points (1 point× 0.5 = 0.5 points). This happens independently of whether you yourself have placed points in the group account or not.

Please follow the instructions on your screen now.

Before you make your decision on the points distribution between the private and the group account, it is determined whether your group of three is affected by the so-called deduction rule.

The deduction rule has the following effect: Four points are subtracted from each group member who has placed less than 20 points in the group account.

At the beginning of the experiment, it is randomly decided whether your group of three is an A group or a B group. Each A group is randomly assigned a B group. You find out in which group you are once the experiment is started on the computer.

A group:

The A group makes its decision on the points distribution between the private and the group account before the B group does.

However, before the points distribution is decided upon, a draw determines whether a vote on the deduction rule will take place in the A group.

If the vote takes place, then the members of the A group will decide whether or not the deduction rule will come into effect in their group. The deduction rule comes into effect if the majority of the members of the A group (i.e., two or three people) votes in favor. If a minority (nobody or one person) votes for the deduction rule, this rule does not come into effect.

If the vote does not take place, then a draw will determine whether the deduction rule will come into effect in the A group.

B group:

After the A group members have made their decision on the points distribution, the B group members also make their decision on the points distribution.

Whether or not the deduction rule comes into effect in the B group depends on whether or not it is in effect in the assigned A group. If the deduction rule is in effect in the corresponding A group, it is also in effect in the B group. In this case, the calculation of the points income changes as described above. If the deduction rule is not in effect in the corresponding A group, it is not in effect in the B group either.

B group members are informed whether the A group assigned to them voted on the deduction rule, or whether the rule was randomly introduced. You will then be told whether or not the deduction rule is in effect in the A group assigned to you, and hence in your group. Then, B group members decide on the points distribution between the private and the group account.

1. A draw determines whether the members of the A group vote on the deduction rule. If there is no vote, a random draw decides whether the deduction rule comes into effect in the A group. If there is a vote, an A group majority decides on the deduction rule. If the rule comes into effect in the A group, then it will also be in effect in the corresponding B group.

2. Members of group A decide how to distribute the points endowment between the private and the group account.

3. Members of group B are told whether a vote has taken place in Group A and whether the deduction rule is in effect in their group or not.

4. Members of group B decide how to distribute their points endowment between the private and the group account.

5. All participants complete a brief questionnaire, which can also earn them money.

At the end of the experiment, you will receive all payoff-relevant information. Please stay in your booth until you are called.

Before you begin with the actual experiment, it is important for you to know how your income is calculated from the points distribution between the private and the group account, if the deduction rule is in effect. We would therefore ask you please to answer some additional control questions on the points distribution. As soon as all participants have correctly answered these questions, the experiment will begin.

Please follow the instructions on your screen now.

Appendix C: Questionnaire

1. Please indicate how many points you think the other two members of your group have contributed to the group account. In order to do this, please write down the total sum of the expected contributions of both other members of your group. Only full numbers between 0 and 40 are acceptable. If your figure corresponds to the actual sum of the contributions of both other members of your group, then you will receive four points in addition to your points income.

2. Please indicate how many points you think the three members of the B group (A group) assigned to you have contributed to the group account. In order to do this, please write down the total sum of the expected contributions of the three group members. Only full numbers between 0 and 60 are acceptable. If your figure corresponds to the actual sum of the contributions of both other members of your group, then you will receive four points in addition to your points income.

3. In your opinion, how many percent of all A groups in the experiment who decided on the subtraction rule have voted for the subtraction rule to come into force? (Integer between 0 and 100).

4. B players & A players Exo: How important would it have been to you to be able to decide yourself on the deduction rule? (Not at all important—very important).

A players in Endo: How important was it to you to be able to decide yourself on the deduction rule? (Not at all important—very important).

5. How satisfied are you with the way in which it was determined for your own group whether or not the subtraction rule would be valid? (Very unsatisfied—very satisfied).

6. How satisfied are you with the way in which it was determined for the B group (A group) assigned to your group whether or not the deduction rule would be valid? (Very unsatisfied—very satisfied).

7. To what extent would you agree with the following statement: The deduction rule is a suitable instrument to guarantee that everyone will contribute something to the group account (Do not agree—agree completely).

8. Gender.

9. Age.

10. Course of study.

Footnotes

References