DP12128 | Spillovers, Persistence and Learning: Institutions and the Dynamics of Cooperation

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We study how cooperation-enforcing institutions dynamically affect values and behavior using a lab experiment designed to create individual specifi c histories of past institutional exposure. We show that the effect of past institutions is mostly due to "indirect" behavioral spillovers: facing penalties in the past increases partners' cooperation in the past, which in turn positively affects ones' own current behavior. We demonstrate that such indirect spillovers induce persistent effects of institutions. However, for interactions that occur early on, we fi nd a negative effect of past enforcement due to differential learning under different enforcement institutions.