How Legal Spillovers Interact with Learning: Theoretical and Experimental Evidence

Abstract: Past exposure, or exposure in other domains, to strong legal enforcement, can affect current behavior in a given field. We conduct a laboratory experiment to study these spillovers in time and space, their persistence and the mechanisms underlying them. We show that being exposed to enforcement in the recent past has a strong positive effect on future cooperation. This is mostly due to an indirect behavioral spillover effect: facing penalties in the past increase past cooperation which in turn positively affects current behavior. However, for interactions that occur early on, we find a negative effect of past enforcement, which is mainly driven by learning.