Can Efficient Institutions Induce Cooperation Among Low Trust Agents?

Abstract

The importance of political institutions for economic growth and social well-being has been demonstrated in a number of studies. Societies in which agents trust that other agents will collaborate in establishing and maintaining efficient institutions produce more social benefits. Yet there is still no solution to the problem known as the social trap, namely how societies can establish efficient institutions when the agents lack social trust. The emerging consensus on Acemoglu & Robin-son’s model is supported by observational data but micro-level data produced in controlled circumstances are absent. To shed light on this perennial problem, a set of laboratory experiments were carried with both high and low trust agents. The main result is that when endowed with strong, socially efficient institutions at the outset, even groups of agents with low social trust are capable of using political inclusion to maintain and also to strengthen the socially efficient institutions thereby achieving collectively high-yielding outcomes. These experiments provide the first experimental support for the importance of strong institutions for developing societies.