Academic journal article The Lahore Journal of Economics

Norms of Cooperation, Trust, Altruism, and Fairness: Evidence from Lab Experiments on Pakistani Students

Academic journal article The Lahore Journal of Economics

Norms of Cooperation, Trust, Altruism, and Fairness: Evidence from Lab Experiments on Pakistani Students

Article excerpt

Abstract

A rich area of economic research focuses on the role of controlled experiments to understand interactions between agents and agents' own deep-seeded preferences as they pertain to pro-social behavior. Four of the most common games-the prisoner's dilemma, and the trust, ultimatum, and dictator games-have been used both in laboratory and field settings, and with student and nonstudent participants. Cardenas and Carpenter (2008) have compiled evidence for these four games that has been collected from behavioral experiments conducted in the US and a number of developing countries. In this paper, we wish to add to the existing evidence by presenting the results of lab experiments carried out on a population of economics students at a university in Lahore.

Keywords: Behavioral Environment, Games, Lahore, Pakistan.

JEL Classification: C73, C93.

1. Introduction

According to the New Institutional Economics outlined by North (1990), institutions are the "humanly devised constraints that shape human interaction;" in other words, they are the rules of the game in society, constraining behavior and shaping incentives. In the New Institutional Economics literature, institutions affect transaction (exchange) costs and transformation (production) costs, thus impacting economic performance (North, 1990). Institutions may be formal or informal. Examples of formal institutions include federal and provincial statutes, common law, constitutions, and written contracts. Informal constraints can be broadly described as customs, norms, conventions of behavior, morals, and generally accepted codes of conduct.

Institutions generally change slowly. So even if formal institutions change suddenly (revolution), customs and other informal constraints do not. Therefore, history is important, leading to the notion of "path dependence" in the New Institutional Economics; where a society has been (in terms of its economic and political systems) affects how it changes, and the opportunities for what it becomes in the future. Also implicit in the notion of path dependence is the recognition that societies can diverge on to different paths and end up in different circumstances in terms of the presiding political system, economic relations, and norms of behavior. The importance of both formal and informal institutions on economic development has been demonstrated empirically (Acemoglu et al., 2001; Knack & Keefer, 1997).

The relationship between formal and informal institutions is a complex issue, which we cannot fully explore here. However, it is thought that, in developing countries, where certain formal institutions are weak, informal ones may take their place. (Informal institutions are often more permanent and slow changing than formal ones, playing a prominent role in the path dependence hypothesis.) These include prosocial norms that contribute to the social capital of a society, including cooperation, trust and reciprocity, altruism, and fairness, which are the focus of this paper. Cooperation can help enforce agreements when there is an incentive to renege-thereby substituting for contract enforcement- and contribute to public goods to fill in for government provision when public execution is weak. Trust and reciprocity help build and maintain relationships (both business and otherwise) and develop informal insurance mechanisms. Altruism aids in the protection of the most vulnerable and can help substitute for social safety nets. Norms of fairness help adjudicate local disputes, which can be particularly useful when formal enforcement is ineffective.

A number of papers have used evidence from experiments conducted on subjects either in the laboratory or in the field to measure these pro-social norms. Cardenas and Carpenter (2008) compiled the results across a number of countries in order to draw some comparisons between developed and developing countries. Experimental evidence from Pakistan is scarce; therefore this paper aims to contribute to the cross-country evidence on lab experiments regarding social preferences. …

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