Norm compliance, enforcement, and the survival of redistributive institutions

We study the intrinsic incentives that drive behavior in redistributive institutions with various levels of enforcement. We are interested in how the opportunistic incentive to use a redistributive institution for personal gain and the desire to follow norms of a regulated community, populated by similarly obedient individuals, interact and determine the success or failure of an institution. In the experiment, subjects can repeatedly join one of three institutions, which are defined by explicitly stated rules that require them to put all, half, or any amount of income in a tax pool for redistribution. The treatments differ in the level of enforcement of these rules. We find that contributions are sustained only when free riding is not possible. However, subjects with a generally strong propensity to follow norms persist in following the rules of redistribution even after experiencing many periods of losses due to free riding. We find that these subjects also perceive the same level of income inequality as fairer, when it was achieved without breaking the rules, and favor redistributive mechanisms with more stringent rules. This suggests that well-defined redistributive rules can create a powerful incentive for cooperation as many individuals seem to prefer stable regulated egalitarian institutions to unregulated libertarian ones. Some form of enforcement is, nevertheless, required to protect egalitarian institutions from exploitation by free riders.