Inefficiency is worse for cooperation than corruption: Experimental evidence

Abstract

The choice individuals make between the public good and their own self-interest lies at the heart of many societal problems. This trade-off has been found to depend on the quality of the institutional context in which cooperation takes place. The effect of institutions on cooperation, however, has been difficult to determine due to cultural and historical confounds, as well as reverse causality. We overcome these hurdles by modelling institutional quality using behavioural games. We develop novel experimental designs expanding on the embezzlement game, allowing us to observe the causal effect of administrative embezzlement and inefficiency on cooper ation. We field two large-scale lab-like experiments: in Germany, where corruption and inefficiencies are not the norm, and Romania, where they may be considered common. We find that individuals are very sensitive to systemic waste or leakages: when exposed to inefficiencies, individuals contribute much less to the public good than when exposed to corruption.