Inherited Institutions: Cooperation in the Light of Democratic Legitimacy

JLEO, V35 N2 364 Inherited Institutions: Cooperation in the Light of Democratic Legitimacy Pascal Langenbach Max Planck Institute for Research on Collective Goods 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 (JEL C92, D02, D71, D72, H41). 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 decisionmaking 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 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. 1. Empirical studies investigated the effects of direct democracy on tax morale (e.g., Torgler 2005; Blume et al. 2009), tax compliance (e.g., Pommerehne and WeckHannemann 1996), constitutional stability (e.g., Elkins et al. 2009), fiscal policy variables (e.g., Matsusaka 1995, 2000; Feld and Matsusaka 2003; Blomberg et al. 2004; Blume et al. 2009), economic performance (e.g., Feld and Savioz 1997; Blomberg et al. 2004), wage levels and employment policy (e.g., Matsusaka 2009), and government effectiveness (e.g., Blume et al. 2009). Further, the focus of several studies has been democracy effects on life satisfaction (e.g., Frey and Stutzer 2005; Blume et al. 2009; Stadelmann-Steffen and Vatter 2012). The Journal of Law, Economics, and Organization, Vol. 35, No. 2 doi:10.1093/jleo/ewz004 Advance Access published May 27, 2019 ß The Author(s) 2019. Published by Oxford University Press on behalf of Yale University. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http:// creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited. Franziska Tausch The University of Sydney Cooperation in the Light of Democratic Legitimacy 365 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; 366 The Journal of Law, Economics, & Organization, V35 N2 2. Marcin et al. (2019) find that democracy initially has a positive effect on cooperation; however, they observe that democratically chosen third parties punish significantly less than exogenously assigned ones. Therefore, after subjects have been repeatedly confronted with the stricter punishment implemented in the exogenous setting, cooperation levels are eventually higher. Lind and Tyler 1988) and that the procedural fairness of legal authorities can increase people’s compliance by enhancing the perceived legitimacy of (...truncated)