Key results and contributions

Experiments are employed to construct a proper counterfactual for the study of causal effects in Economics, and the method has been used to investigate the impact of institutions and norms on behavior. More recently, experimental economists have tried to analyze processes of institutional change by endogenizing institutions. Participants in the experiment have a certain say in the design of the rules of the game. Different types of experiments are based on different definitions of institutions and institutional change.

Aside from explicating the different viewpoints and links to empirical work, the dissertation aimed at the empirical study of behavior under different institutions, the interaction of institutions with contextual variables, and an identification of factors that are important in the experimental investigation of institutional change in field settings.

The first paper has laid the foundation for the dissertation by showing that different schools of thought in Institutional Economics find a representation in the empirical practice of Experimental Economics. These links are implicit, and experimental economists rarely refer to theoretical work on institutions and institutional change, even if the direct empirical focus is on such change. A key contribution of this dissertation is to highlight these links, emphasizing theoretical consistency in empirical work. Furthermore, the paper has also identified a number of issues faced in the study of institutional change. For instance, the role of constitutional rules – deeper level rules on how to change existing rules – requires more attention in empirical work. Additional factors have emerged from the empirical applications. From different perspectives, the four empirical papers of this dissertation have investigated how institutions interact with the payoffs rules of an experiment (Material Payoffs Game Layer), social variables (Group-Context Layer), and individual variables (Identity Layer).

The second paper and third paper investigated the impact of exogenous institutions on behavior. The second paper studied traffic policies and the impact of socio-economic backgrounds. It found that payoffs had a large impact on decision-making. Making the bus more attractive or making the car less attractive by modifying payoffs changed subjects’

choices (Material Payoffs Game Layer). Furthermore, subjects frequently switched between the bus and the car, indicating that their decisions also depend on what others do (Group-Context Layer). In concordance with prospect theory (Kahneman & Tversky, 1979), at the individual level, framing the policy intervention as a loss has led to a larger

image of using a particular transportation mode and personal experience were important (Identify Layer).

The third paper expanded on this idea as it moved more explicitly to the Group-Context Layer. Heterogeneity in wealth was manipulated, and participants also knew whether or not wealth was distributed unequally in the game. In addition, institutions were modified. In one version of the game, players contributed in parallel; in another version, leading by example was introduced. It was found that there are small negative impacts of wealth heterogeneity and leading by example with strong heterogeneity in the effect of the latter.

In a situation where leadership does not matter, real-life leaders do not behave differently from others. However, in a situation where setting a positive example is important, leaders contribute substantially more than those who are not used to this role. Significantly more than in the benchmark case, decisions of the inexperienced were guided by the history of play, namely what others contributed in the previous round.

In the last two papers, the perspective became more agent-centered, and for the most part, structural aspects were neglected. In the fourth paper, it was shown that status quo matters for individual decision-making. As a default, if landlords push tenants to use “no junk mail” stickers, these are used more. It was demonstrated that by means of a small

“nudge,” deliberate decisions are encouraged, and the use of stickers can be increased.

In the fifth paper, a simple prisoner’s dilemma game was embedded into a field experiment. It was shown that experience in the game had a positive impact on the donation to an environmental foundation. In this way, the role of cognition and context was highlighted. At least in the short run, experience with the game – even if it was negative – had a positive effect on pro-environmental behavior. The contributions of the empirical papers are summarized in the table.

Table 28: Summary of empirical papers

Paper Number

Material Payoffs Game Layer

Group-Context Layer Identity Layer

II Different institutions

improvements are

Heterogeneity negative; Leadership skills and experience strongly interact with

leadership institution in the game

IV Status quo rule matters;

anecdotal evidence on

Perception of what is the social norm

Self-image with respect to environmental behavior V Main interest in altruism

(other-regarding

preferences) by means of a dictator game

Perception of what is the social norm

The third guiding question of the dissertation sought to investigate how useful economic experiments are for the study of institutional change and which contextual factors must be considered. The framework of Cárdenas & Ostrom (2004) assumes that the rules of the game are static. It was shown that this must not necessarily be the case and that – at least in the long run – institutions change. Such institutional change is subject to a set of deeper-level rules:

All rules are nested in another set of rules that define how the first set of rules can be changed. […] What can be done at a higher level will depend on the capabilities and limits of the rules at that level and at a deeper level. Whenever one addresses questions about institutional change, as contrasted to ongoing actions within institutional constraints, it is necessary to recognize that:

“fixed” set of rules at a deeper level.

2. Changes in deeper-level rules usually are more difficult and more costly to accomplish, thus increasing the stability of mutual expectations among individuals interacting according to the deeper set of rules. (Ostrom, 2005, p. 58; emphasis in the original)

These deeper level rules can be both at the agent and structural levels. For instance, in a parliament, a formally devised (constitutional) rule exists on how to change laws. In more informal settings, a shared norm or shared expectations may form the constitutional basis for altering an existing rule. In both instances, it is methodically challenging to address the quickly unfolding complexity that is involved in dynamic processes of institutional change.

One way to deal with such complexity lies in the careful and transparent decomposition of the empirical setting at hand. Experiments then allow the singling out of particular aspects, holding other aspects constant.

The commonality of the papers in this dissertation is that they investigate a broader range of context-specific aspects in the study of institutions and behavior by examining the interaction of institutions with individual or social variables. Although institutions are not endogenous in any of the empirical papers in the sense that they can be changed by participants, the empirical papers can jointly contribute to an improved understanding not only of static institutional analysis but also of institutional change. In particular, each of the papers highlights a set of more specific aspects that could be considered in the study of institutional change. A research framework which synthesizes the findings of all five papers is presented on this basis.³⁹

7.2. The dynamic view on institutions: A framework for conducting