School Brown Bag: Devesh Rustagi

The interdependence of rules and cooperative values in commons management

Abstract: Culture and institutions are expected to interact with each other, but there is hardly any evidence on the importance of this interaction for economic outcomes. I investigate how the interaction between formal rules regulating resource use and cultural values promoting cooperation affects successful commons management by groups. I find that groups achieve best forest outcomes when they have both rules and values operating in tandem, but not when they have only one of these operating in isolation. Identification strategies that account for non-random formation of groups and pre-existing differences show that these findings are not due to omitted variables. Falsification tests based on detailed aspects of forest ecology lend further support to these results. These effects arise because when rule enforcement is decentralized it is prone to a second order free rider problem, which requires cooperative values for successful implementation. When enforced, rules engender optimistic beliefs that others will contribute, eventually resulting in higher cooperation levels. Data from household surveys and behavioral experiments confirm this: individuals from groups with rules and cooperators spend much more time monitoring their forest, hold optimistic beliefs about others’ contributions, and contribute more to the public goods game. These findings imply that both culture and institutions are required for economic outcomes that warrant collective action.