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Social Preferences and Public Economics: Are good laws a substitute for good citizens?
Abstract
Laws and policies designed to harness self-regarding preferences to public ends may fail when they compromise the beneficial effects of pro-social preferences. Experimental evidence indicates that incentives that appeal to self interest may reduce the salience of intrinsic motivation, reciprocity, and other civic motives. Motivational crowding in also occurs. The evidence for these processes is reviewed and a model of optimal explicit incentives is presented.
... incentives (e.g. Benabou and Tirole, 2003 and forthcoming;Bohnet, Huck and Frey, 1997;Bowles, 2006;Falk and Kosfeld, forthcoming;Fehr and Falk, 2002;Schmidt, 2002, Gneezy andRustichini, 2000). Nevertheless, in order to fully understand the behavioural consequences of formal rules, it may be necessary to go beyond incentives. ...
How formal rules affect human behaviour is a crucial issue in economics. Formal rules are defined as obligations backed by incentives. The economic literature has largely focused on the role of incentives in shaping individual behaviour, Yet, the role of obligations, i.e. what formal rules ask people to do or not to do, has been largely ignored. In this paper we run a public good game experiment to analyze the bahavioural effects of obligations. We find evidence that obligations can affect cooperative bahaviour both by coordinating conditional cooperators beliefs about others behaviour and by directly affecting preferences for cooperations. Our results shed a new light on the behavioural channels through which formal rules can affect individual behaviour. These findings suggest the opportunity to broaden the scope of analysis in order to again a better understanding of the effects of institutions on economic outcomes.
... A world in which agents are heterogeneous and selfish individuals cohabit with other-regarding ones and in which agents display reciprocative behaviour raises completely new problems in the design of an optimal economic policy (Bowles, 2006). Already analyzed has been the problem of motivational crowdingout (and crowding in) which emerges when external intervention via monetary incentives or punishments may undermine (and under different conditions strengthen) intrinsic motivation (Frey and Jegen, 2001). ...
The paper analyzes the trade-off between power and altruism by using an experimental framework which involved a group of experimental agents, undergraduate students of the University of Siena. The results show that the introduction into the experimental structure of a tournament for the power appreciably altered the behaviour of agents. More specifically the degree of altruism, measured by the dictator offers, significantly decreased when the agents were able to trade altruism for power. The results were more clear-cut and robust in the case of the dictator game, but also in the case of the ultimatum game the introduction of the tournament for power altered the behavior of subjects. A significant gender effect emerged
... In particular some individuals display reciprocative behaviour: that is to say, they respond in a friendly and good-natured manner to good-natured behaviour and respond negatively to egoistical behaviour. A world in which agents are heterogeneous and selfish individuals cohabit with otherregarding ones and in which agents display reciprocative behaviour raises completely new problems in the design of an optimal economic policy (Bowles, 2006). Already analyzed has been the problem of motivational crowding-out (and crowding in) which emerges when external intervention via monetary incentives or punishments may undermine (and under different conditions strengthen) intrinsic motivation (Frey and Jegen, 2001). ...
This paper examines the social effects of fair trade transactions emerging from policies to expand the market around the globe. Focusing on the case of coffee farmers in Guatemala, it examines tensions that are created in local organisational networks linked to production, processing and certification of fair trade organic coffee and how these tensions fracture and fragment the life worlds of these coffee farmers. While the fair trade market has provided positive opportunities for rural producers the research finds that network separation and market exclusion are also social expressions of involvement in fair trade. It is argued that fair trade policies need to reflect a more nuanced understanding of household and community level consequences of production for the fair trade market. Copyright � 2009 John Wiley & Sons, Ltd.
Many organizations offer profit sharing plans to motivate increased effort and goal congruence. However, an unintended consequence of such plans may be to reduce honesty in managerial reporting. We investigate two commonly observed profit sharing plans (individual and pooled) in a laboratory experiment where multiple agents with private cost information submit budget requests to an employer. Consistent with our prediction based on crowding theory, our findings suggest that honesty is reduced in the presence of an individual profit sharing plan. However, when a pooled profit sharing plan is used, the adverse effects on honesty are partially mitigated. Our results suggest that an unintended consequence of profit sharing (decreased honesty) can be mitigated through interdependency from pooled plans. The results have practical implications, given that organizations have flexibility in establishing both the size and scope of their profit sharing plans. Our study also contributes to our understanding of reporting behavior, particularly in multi‐agent settings.
We model the dynamic effects of external enforcement on the exploitation of a common pool resource. Fitting our model to experimental data we find that institutions influence social preferences. We solve two puzzles in the data: the increase and later erosion of cooperation when commoners vote against the imposition of a fine, and the high deterrence power of low fines. When fines are rejected, internalization of a social norm explains the increased cooperation; violations (accidental or not), coupled with reciprocal preferences, account for the erosion. Low fines stabilize cooperation by preventing a spiral of negative reciprocation.
Mainstream economists and liberal politicians are criticizing the Third Way as it is being applied in the Netherlands. They argue that mutual consultation precludes an efficient adaptation to disturbances. The present study analyzes changes in wage and income policy in the Netherlands until 2005. It finds that wage and income policy has proven to be flexible enough to address "new" challenges in the Netherlands. The flexibility is rooted in a culture of tolerance that allows for some breaking of working rules. The latter arises from bounded socialization, that is, the imperfect transmission of information with respect to social working rules that result in similar but not identical copies of institutions.
In this novel introduction to modern microeconomic theory, Samuel Bowles returns to the classical economists' interest in the wealth and poverty of nations and people, the workings of the institutions of capitalist economies, and the coevolution of individual preferences and the structures of markets, firms, and other institutions. Using recent advances in evolutionary game theory, contract theory, behavioral experiments, and the modeling of dynamic processes, he develops a theory of how economic institutions shape individual behavior, and how institutions evolve due to individual actions, technological change, and chance events. Topics addressed include institutional innovation, social preferences, nonmarket social interactions, social capital, equilibrium unemployment, credit constraints, economic power, generalized increasing returns, disequilibrium outcomes, and path dependency. Each chapter is introduced by empirical puzzles or historical episodes illuminated by the modeling that follows, and the book closes with sets of problems to be solved by readers seeking to improve their mathematical modeling skills. Complementing standard mathematical analysis are agent-based computer simulations of complex evolving systems that are available online so that readers can experiment with the models. Bowles concludes with the time-honored challenge of "getting the rules right," providing an evaluation of markets, states, and communities as contrasting and yet sometimes synergistic structures of governance. Must reading for students and scholars not only in economics but across the behavioral sciences, this engagingly written and compelling exposition of the new microeconomics moves the field beyond the conventional models of prices and markets toward a more accurate and policy-relevant portrayal of human social behavior.
There is an important basic similarity underlying a number of recent works in apparently widely separated fields of economic theory. Upon examination, it would appear that the authors have been rediscovering, in some of the many guises given it by various specific problems, a single general theorem. This theorem forms the core of what may be called The General Theory of Second Best. Although the main principles of the theory of second best have undoubtedly gained wide acceptance, no general statement of them seems to exist. Furthermore, the principles often seem to be forgotten in the context of specific problems and, when they are rediscovered and stated in the form pertinent to some problem, this seems to evoke expressions of surprise and doubt rather than of immediate agreement and satisfaction at the discovery of yet another application of the already accepted generalizations.
In this paper, we investigate the effects of competition on bargained outcomes. We show that the neglect of either fairness concerns or decision errors will prevent a satisfactory understanding of how competition affects bargaining. We conducted experiments which demonstrate that introducing a small amount of competition to a bilateral ultimatum game – by adding just one competitor – induces large behavioral changes among responders and proposers,
causing large changes in accepted offers. Models that assume that all people are self-interested and fully rational do not adequately explain these changes. We show that a model which combines heterogeneous fairness concerns with decision errors correctly predicts the comparative
static effects of changes in competition. Moreover, the combined model is remarkably good at predicting the entire distribution of offers in many different competitive situations.
This book is the result of a collaborative effort by eleven anthropologists and six economists, and questions the motives that underlie the ways that humans interact socially, and whether these are the same for all societies, and are part of our nature, or are influenced by our environments. Over the past decade, research in experimental economics has emphatically falsified the textbook representation of Homo economicus, with hundreds of experiments that have suggested that people care not only about their own material payoffs but also about such things as fairness, equity, and reciprocity. However, this research has left fundamental questions unanswered: are such social preferences stable components of human nature; or, are they modulated by economic, social, and cultural environments? Until now, experimental research could not address this question because virtually all subjects had been university students, and while there are cultural differences among student populations throughout the world, these differences are small compared with the full range of human social and cultural environments. A vast amount of ethnographic and historical research suggests that people's motives are influenced by economic, social, and cultural environments, yet such methods can only yield circumstantial evidence about human motives. In combining ethnographic and experimental approaches to fill this gap, this book breaks new ground in reporting the results of a large cross-cultural study aimed at determining the sources of social (non-selfish) preferences that underlie the diversity of human sociality. The same experiments that provided evidence for social preferences among university students were performed in fifteen small-scale societies exhibiting a wide variety of social, economic, and cultural conditions by experienced field researchers who had also done long-term ethnographic field work in these societies. The results, which are given in chs. 4 to 14, demonstrated no society in which experimental behaviour is consistent with the canonical model of self-interest, and showed that variation in behaviour is far greater than previously thought, and that the differences between societies in market integration and the importance of cooperation explain a substantial portion of the variation found (which individual-level economic and demographic variables could not). The results also trace the extent to which experimental play mirrors the patterns of interaction found in everyday life. The book has three introductory chapters that include a succinct but substantive introduction to the use of game theory as an analytical tool, and to its use in the social sciences for the rigorous testing of hypotheses about fundamental aspects of social behaviour outside artificially constructed laboratories, and an overview and summary of the results of the fifteen case studies.
Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.
Discusses the cognitive and the psychophysical determinants of choice in risky and riskless contexts. The psychophysics of value induce risk aversion in the domain of gains and risk seeking in the domain of losses. The psychophysics of chance induce overweighting of sure things and of improbable events, relative to events of moderate probability. Decision problems can be described or framed in multiple ways that give rise to different preferences, contrary to the invariance criterion of rational choice. The process of mental accounting, in which people organize the outcomes of transactions, explains some anomalies of consumer behavior. In particular, the acceptability of an option can depend on whether a negative outcome is evaluated as a cost or as an uncompensated loss. The relationships between decision values and experience values and between hedonic experience and objective states are discussed. (27 ref)
A major concern in psychology and education is that rewards decrease intrinsic motivation to perform activities. Over the past 30 years, more than 100 experimental studies have been conducted on this topic. In 1994, Cameron and Pierce conducted a meta-analysis of this literature and concluded that negative effects of reward were limited and could be easily prevented in applied settings. A more recent meta-analysis of the literature by Deci, Koestner, and Ryan (1999) shows pervasive negative effects of reward. The purpose of the present article is to resolve differences in previous meta-analytic findings and to provide a meta-analysis of rewards and intrinsic motivation that permits tests of competing theoretical explanations. Our results suggest that in general, rewards are not harmful to motivation to perform a task. Rewards given for low-interest tasks enhance free-choice intrinsic motivation. On high-interest tasks, verbal rewards produce positive effects on free-choice motivation and self-reported task interest. Negative effects are found on high-interest tasks when the rewards are tangible, expected (offered beforehand), and loosely tied to level of performance. When rewards are linked to level of performance, measures of intrinsic motivation increase or do not differ from a nonrewarded control group. Overall, the pattern of results indicates that reward contingencies do not have pervasive negative effects on intrinsic motivation. Theoretical and practical implications of the findings are addressed.
This paper integrates game-theoretical and sociological concepts to conduct a comparative historical analysis of the relations between culture and institutions. It indicates the importance of culture, and in particular cultural beliefs, in determining institutions, in institutional path dependence, and in forestalling intersociety successful adoption of institutions. Examination of institutional change in two premodern societies from the Muslim and the Latin worlds yields that their distinct institutional structures resemble those found by social psychologists to differentiate contemporary developing and developed economies. This suggests the historical importance of distinct cultures and the related societal organizations in economic development. Copyright 1994 by University of Chicago Press.
There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
We examine experimentally how Chief Executive Officers (CEOs) respond to incentives and how they provide incentives in situations requiring trust and trustworthiness. As a control we compare the behavior of CEOs with the behavior of students. We find that CEOs are considerably more trusting and exhibit more trustworthiness than students – thus reaching substantially higher efficiency levels than students. Moreover, we find that, for CEOs as well as for students, incentives based on explicit threats to penalize shirking backfire by inducing less trustworthy behavior – giving rise to hidden costs of incentives. However, the availability of penalizing incentives also creates hidden returns: if a principal expresses trust by voluntarily refraining from implementing the punishment threat, the agent exhibits significantly more trustworthiness than if the punishment threat is not available. Thus trust seems to reinforce trustworthy behavior. Overall, trustworthiness is highest if the threat to punish is available but not used, while it is lowest if the threat to punish is used. Paradoxically, however, most CEOs and students use the punishment threat, although CEOs use it significantly less.
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
The identity of the people engaged in a transaction is a major determinant of the institutional mode of transaction. The family is the locale of transactions in which identity dominates; however, identity is also important in the market. The opportunity to reduce transaction costs by making specific investments in exchanges between identified parties affects the organization of social activity, the division of labor, and, in particular, the interaction between specialization by identity and by other dimensions of transactions. Economic and social development can be understood in terms of changes in the modes of transacting. Within this broad framework one can also analyze the transactions in which families have an advantage over other institutions, the conditions that make families of various types more or less efficient than alternative modes of transaction, and the implications of family membership for transactions with others.
When discussing constitutional design, economists concentrate on the propensity of individuals to free ride. Preventing opportunistic behaviour by knaves has costs by crowding out civic virtue. Another view emphasises active citizen participation in order to bolster civic virtue. A viable constitution must therefore be strict enough to deter exploitative behaviour. At the same time, the constitution should fundamentally convey trust towards its citizens and politicians. Distrusting public laws risk destroying the positive attitude of citizens and politicians towards the state. Civic virtue can be maintained and fostered by direct citizen participation via popular referenda and initiatives.
We study behavior within a simple principal-agent experiment. Our design allows for a large class of linear contracts. Principals can offer any feasible combination of (negative) fixed wages and incentives in the form of return sharing. This great contractual flexibility allows us to study incentive compatibility simultaneously with issues of ‘fair sharing’ and reciprocity, which were previously found to be important. We find a high degree of incentive-compatible behavior, but also ‘fair sharing’ and reciprocity. In contrast to other incentive devices studied in the literature, the incentives are ‘reciprocity-compatible’. Principals recognize the agency problem and react accordingly.
This article presents detailed quantitative descriptions of food distributions among a group of forager-horticulturalists, the Ache of Paraguay. Food transfer patterns for Ache during periods of nomadic foraging are compared with those of Ache living a horticulture-based existence at a permanent settlement. We further explore how characteristics of resources and the methods of production, group size, and the spatial landscape can influence the kinds of social arrangements found among the Ache. The results of these analyses are used to generate general predictions regarding food sharing and cooperation among other foraging and transitional horticultural populations.
We investigate the manner in which a desire to emulate the rich influences individuals’ allocation of time between labour and leisure, greater inequality inducing longer work hours as a result. Data on work hours in ten countries over the period 1963–98 show that greater inequality is indeed associated longer work hours. These ‘Veblen effects’ are large and the estimates are robust using country fixed effects and other specifications. Because consumption inequality is a public bad, a social welfare optimum cannot be implemented by a flat tax on consumption but may be accomplished by more complicated (progressive) consumption taxes.
Yamagishi's (1986a) experiment, which tested hypotheses derived from the structural goal/expectation approach to the problem of social dilemmas, was replicated using North American subjects. The results of the current experiment, using 48 same-sex, four-person groups, replicated the major findings of the original study. In addition, American subjects had a higher level of trust and cooperated more in the absence of a sanctioning system than did Japanese subjects. On the other hand, the predicted difference between American and Japanese subjects in the contribution to the provision of a sanctioning system did not emerge.
Three studies are used to examine how surveillance and sanctioning systems affect cooperative behavior in dilemma situations. The first two studies demonstrate that a weak sanctioning system results in less cooperation than no sanctioning system; furthermore, results from the second study suggest that sanctions affect the type of decision people perceive they are making, prompting them to see it as a business rather than an ethical decision. The results from these studies are used to develop a theoretical model that postulates that the relationship between sanctions and cooperation is due to both a signaling effect, in which sanctions influence the type of decision that is perceived to be made, and a processing effect, in which the decision processing, including whether or not the strength of the sanction is considered, depends on the decision frame evoked. A third study provides support for the processing-effect hypothesis.
The currently accepted theory of collective action presumes that individuals are helplessly trapped in social dilemmas. This has led to a form of policy analysis that presumes external authorities must solve all collective-action problems. The presumed universal need for externally implemented incentives is based, however, on a single model of rational behavior. This model has been shown to be an inadequate foundation to explain extensive empirical findings from the field and the experimental laboratory related to nonmarket settings. Thus, it is necessary to adopt a broader theory of human behavior that posits multiple types of individuals – including rational egoists as well as conditional cooperators – and examines how the contexts of collective action affect the mix of individuals involved. I will briefly review the empirical evidence related to intrinsic motivations and how external incentives may crowd out or crowd in behaviors that are based on intrinsic preferences. I then discuss the delicate problem of designing institutions that enhance citizenship rather than crowding it out. The penchant for neat, orderly hierarchical systems needs to be replaced with a recognition that complex, polycentric systems are needed to cope effectively with complex problems of modern life and to give all citizens a more effective role in the governance of democratic societies.
The standard economic conception of deterrence assumes that individuals obey or break the law depending on the "price" of crime -- that is, the severity of punishment discounted by the probability that it will be imposed. This paper supplements the standard conception by showing that individuals' decisions to commit crimes are also responsive to another factor: the decisions of other individuals to commit them or not. Social psychologists use the term social influence to refer to the pervasive tendency of individuals to conform to the behavior and expectations of others. There is ample evidence that social influence affects the commission of all manner of crime, from theft, to homicide, to tax evasion. Identifying the contribution of social influence to criminality suggests that society should attend not just to law's effect on the price of crime, but also to its social meaning -- that is, its power to shape individuals' perceptions of the conduct and values of other individuals. In some cases, policies that seem to have little effect on the price of crime -- including order-maintenance policing and curfews -- might nonetheless be cost-effective deterrents because of their power to suppress signs that individuals are engaged in or value crime. Likewise, policies that appear to be cost-effective means of raising the price of crime -- such as the substitution of severity of punishment for certainty of conviction -- might in fact undermine deterrence by magnifying the perception that crime is rampant.
The Definition of Political Economy The General Will and Political Economy “The General Will [is] the First Principle of Public Economy” The Second Rule of Political Economy Political Economy and Public Education Third Rule of Political Economy “The Distinction between Necessaries and Superfluities” Cui Bono? Rich or Poor? “Heavy Taxes” on “Superfluous Expenses”
Markets are one of the most salient institutions produced by humans, and economists have traditionally analyzed the workings of the market mechanism. Recently, however, economists and others have begun to appreciate the many institution-related events and phenomena that have a significant impact on economic performance. Examples include the demise of the communist states, the emergence of Silicon Valley and e-commerce, the European currency unification, and the East Asian financial crises. In this book Masahiko Aoki uses modern game theory to develop a conceptual and analytical framework for understanding issues related to economic institutions. The wide-ranging discussion considers how institutions evolve, why their overall arrangements are robust and diverse across economies, and why they do or do not change in response to environmental factors such as technological progress, global market integration, and demographic change.
The wave of formal legal system reforms sweeping developing countries provides only a partial solution to the problem of enforcing agreements between firms. Informal institutions govern the majority of interfirm transactions. Economic reform also necessitates changes in these institutions. This paper examines the evolution of contract enforcement in the Mexican footwear industry as trade barriers were removed. In the closed economy, geographic agglomeration of manufacturing allowed the manufacturers' trade associations to maintain information about the behavior of retailers and gave retailers strong incentives to maintain reputations. By providing an alternative source for procurement, trade liberalization weakened the power of manufacturers.
Maynard Smith (1978) has raised the problem of the hawk-dove game played between relatives. Here, the evolutionarily stable state of the population is found as a function of the average relatedness of a player to his opponents. Surprisingly, the continuous or ‘mixed’ strategy case and the discrete or ‘pure’ strategy case must be treated separately. It is claimed that previous published analyses of the evolutionarily stable state are invalid. The errors committed are discussed, and ascribed to the use of the concept of ‘fitness’, rather than the less confusing notion of gene frequency.
This paper is concerned with the role of trust in export manufacturing. It asks how trust has developed in two industrial clusters which are located in developing countries and export most of their output to North America and Europe. The main conclusion is that trust was based initially on socio-cultural ties between clustered firms and later on conscious investments in inter-firm relationships.
When private charity exists and is motivated by utility interdependence a non-Pareto optimal outcome, the ‘free-rider’ problem, typically arises. Nevertheless, incremental fiscal redistribution cannot achieve a Paretian welfare improvement so long as private charity continues at positive levels. Donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way. No net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero. Alternatively, a net transfer may be achieved by fiscal measures which affect donors' marginal incentives to donate.
Contemporary political theory often assumes that individuals cannot make credible commitments where substantial temptations exist to break them unless such commitments are enforced by an external agent. One such situation may occur in relation to common pool resources, which are natural or man-made resources whose yield is subtractable and whose exclusion is nontrivial (but not necessarily impossible). Examples include fisheries, forests, grazing ranges, irrigation systems, and groundwater basins. Empirical evidence, however, suggests that appropriators in common pool resources develop credible commitments in many cases without relying on external authorities. We present findings from a series of experiments exploring (1) covenants alone (both one-shot and repeated communication opportunities); (2) swords alone (repeated opportunities to sanction each other); and (3) covenants combined with an internal sword (one-shot communication followed by repeated opportunities to sanction each other).
"Institutional arrangements for the management of common-pool resources are created and evolve in particular settings. A full understanding of the evolution and survival of such arrangements thus requires dynamic analysis of case studies. The framework presented in Oakerson (1986) may be applied recursively to examine dynamic sequences of change. Thus responses to exogenous shocks in one period become part of the existing set of institutional arrangements in the next, affecting the subsequent path of evolution in institutional arrangements. The dynamic sequences of change in the management of forest resources in Niger (1884-1984) and land resources in Thailand (1850-1980) are the theme of the paper. By applying the model in Oakerson (1986) iteratively, changes in both individual strategies and decision-making arrangements may be made endogenous. The approach is applied at both the local and supra-local levels."
From Introduction: "Common property resources (CPRs) can be broadly defined as those (non-exclusive) resources in which a group of people have co-equal use rights. Membership in the group of co-owners is typically conferred by membership in some other group, generally a group whose central purpose is not the use or administration of the resource (per se), such as a village, a tribe, etc. (Magrath 1986, Bromley and Cernea 1989). In the context of Indian villages the resources falling in this category include community pastures, community forests, waste lands, common dumping and threshing grounds, watershed drainages, village ponds, rivers, rivulets as well as their banks and beds. Even when the legal ownership of some of these resources rests with another agency (e.g. waste lands belonging to the Revenue department of the State), in a de facto sense they belong to the village communities. "The first three of the resources mentioned above, being large in area and major contributors to rural people's sustenance, are more important. Unlike in high-income countries, in the case of developing countries CPRs continue to be a significant component of the land resource base of rural communities. This is more so in the relatively high-risk, low-productivity areas such as the arid and semi-arid tropical regions of India. Historically, (i) the presence of factors less favourable to rapid privatisation of land resources; (ii) community level concerns for collective sustenance and ecological fragility; and (Hi) dependence of private resource based farming on the collective risk sharing arrangements, constituted circumstances favourable to the institution of common property resources in these areas. CPRs in turn contribute to the production and consumption needs of rural communities in several ways. However, notwithstanding their private contributions, CPRs are faced with a serious crisis, as reflected by their area shrinkage, productivity decline, and management collapse. "This paper, based on field studies of CPRs in the dry tropical regions of India, presents micro-level evidence on contributions of CPRs, their present crisis, and future prospects. The evidence presented here on different aspects of CPRs, especially their decline, user groups, productivity and management aspects etc. has been corroborated by other micro-level studies on the subject in different parts of the dry regions of India. (Iyengar 1988, Brara 1987, Chen 1988, Blaikie et al. 1985, Gupta 1986, Wade 1988, Ananth Ram and Kalla 1988 and Oza 1989)."
In the classic bestseller, Capitalism and Freedom, Milton Friedman presents his view of the proper role of competitive capitalismâthe organization of economic activity through private enterprise operating in a free marketâas both a device for achieving economic freedom and a necessary condition for political freedom. Beginning with a discussion of principles of a liberal society, Friedman applies them to such constantly pressing problems as monetary policy, discrimination, education, income distribution, welfare, and poverty. "Milton Friedman is one of the nation's outstanding economists, distinguished for remarkable analytical powers and technical virtuosity. He is unfailingly enlightening, independent, courageous, penetrating, and above all, stimulating."-Henry Hazlitt, Newsweek "It is a rare professor who greatly alters the thinking of his professional colleagues. It's an even rarer one who helps transform the world. Friedman has done both."-Stephen Chapman, Chicago Tribune
Human cooperation in a large group of genetically unrelated people is an evolutionary puzzle. Despite its costly nature, cooperative behaviour is commonly found in all human societies, a fact that has interested researchers from a wide range of disciplines including biology, economics, and psychology to name a few. Many behavioural experiments have demonstrated that cooperation within a group can be sustained when free riders are punished. We argue that punishment has both a direct and an indirect effect in promoting cooperation. The direct effect of punishment alters the consequences of cooperation and defection in such a way as to make a rational person prefer cooperation. The indirect effect of punishment promotes cooperation among conditional cooperators by providing the condition necessary for their cooperation -- i.e., the expectation that other members will also cooperate. Here we present data from two one-shot, n-person Prisoner's Dilemma games, demonstrating that the indirect effect of punishment complements the direct effect to increase cooperation in the game. Further, we show that the direct and indirect effects are robust across two forms of punishment technology; either when the punishment is voluntarily provided by game players themselves or when it is exogenously provided by the experimenter.
This article develops an economic theory of expressive law. By expressing social values, law can tip a system of social norms into a new equilibrium. This process can create or destroy a social norm without changing individual values. In addition, law can change the individual values of rational people. Internalizing a social norm is a moral commitment that attaches a psychological penalty to a forbidden act. A rational person internalizes a norm when commitment conveys an advantage relative to the original preferences and the changed preferences. I call such a commitment a "Pareto self-improvement." By creating opportunities for Pareto self-improvements, law induces rational people to change their preferences. Inducing change in this way respects individual preferences, rather favoring a particular moral theory. Copyright 1998 by the University of Chicago.
This paper derives an equilibrium price-quality schedule for markets in which buyers cannot observe product quality prior
to purchase. In such markets there is an incentive for sellers to reduce quality and take short-run gains before buyers catch
on. In order to forestall such quality cutting, the price-quality schedule involves high quality items selling at a premium
above their cost. This premium also serves the function of compensating sellers for their investment in reputation. The effects
of improved consumer information and of a minimum quality standard on the equilibrium price-quality schedule are studied.
In general, optimal quality standards exclude from the market items some consumers would like to buy.
Recent evidence highlights the importance of social norms in many economic relations. However, many of these relationships are long term and provide repeated game incentives for performance. We experimentally investigate interaction effects of reciprocity and repeated game incentives in two treatments (one‐shot and repeated) of a gift‐exchange game. In both treatments we observe reciprocity, which is strengthened in the repeated game. A detailed analysis shows that, in the repeated game, some subjects imitate reciprocity. Thus, reciprocity and repeated game incentives reinforce each other. Observed behaviour is robust against experience. We conclude that long‐term interaction is a “reciprocity‐compatible” contract enforcement device.
JEL classification : J 30; C 91