After a few quick remarks about experimental and behavioral economics in general, I’ll discuss ways in which some experimental economists including myself are using laboratory decision experiments to gain insights into how institutions evolve, thinking of the state as one kind of institution for governing people’s interaction in social dilemmas.
Much of social, economic and political life in large scale societies involves the dilemma that people need to abide by rules and provide themselves with public goods such as trustworthy water, food, and pharmaceutical supplies, public transportation, a stable currency, etc., but each individual has private incentives to free ride or treat themselves as being above the rules.
Mutual monitoring, peer pressure, and peer punishment is a solution that works well for some parts of the dilemma and especially on small or local scales, but states appear needed for other parts, which raises the question of whether we can have the enforcement powers of states, yet retain both basic liberties and public authority over the state (a.k.a. democracy and state accountability).
I’ll focus mainly on the voluntary contribution or public goods game set-up and its experimental study without and with peer or centralized punishment institutions, determination of the institution by voting with ballots or with the feet, as in Markussen, Putterman and Tyran (2014) and related papers, with a few words about studying how democracy itself affects behaviors (Dal Bo, Foster and Putterman, 2010), and current work on civic engagement as a 2nd order public good that underpins a democratic government’s powers of taxation (Kamei, Putterman and Tyran (2019).
In the talk, I’ll briefly describe the nature and histories of the fields of experimental and behavioral economics, which have become major fields of economics around the world since the late 1980s. I’ll focus in particular on the difference between behavioral economics and traditional economic theory and on a few ways in which this plays out with regard to deviations from the assumption of strict self-interest and rationality. I’ll then briefly introduce some of the economics literature about inequality, incentives, and redistribution, and I’ll go into a few details regarding a specific set of experiments (including Durante, Putterman and van der Weele, 2014) that study whether, to what degree, and under what circumstances people favor reduced inequality