Institutions and Behavior: Experimental Evidence on the Effects of Democracy

Abstract: We present results from a novel experiment on the effect of a policy designed to encourage cooperation in a prisoner’s dilemma game. We find that the effect of this policy on the level of cooperation is greater when it was chosen democratically by the subjects than when it was exogenously imposed. In contrast to the previous literature, our experimental design allows us to control for selection effects (e.g. those who choose the policy may be affected differently by it). Our finding implies that democratic institutions may affect behavior in addition to its effect through the choice of policies. More generally, our findings have implications for empirical studies of treatment effects in other contexts: the effect of a treatment can differ depending on whether it is endogenous or exogenous.