The corporate legality game a lab experiment on the impact of policies, frames and information

Becchetti, Leonardo;Pelligra, Vittorio;Rossetti, Fiammetta

2024-01-01

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Abstract

A company engaging in illicit practices can undermine competitors operating within legal boundaries, ultimately eroding the public good of legality and integrity. Recently established institutional legality ratings aim to address this issue. We investigate the impact of these ratings through a randomized experiment simulating redistributive policies. These policies tax “defectors” (buyers of unrated products) and benefit “co-operators” (buyers of legality-rated products) to promote legality and combat corruption. Our findings show that redistribution mechanisms, the legality frame, and conformity information design significantly mitigate the Prisoner’s Dilemma, leading to notable deviations from the Nash Equilibrium. Concerning anti-corruption strategies, our results suggest that consumer willingness to pay for legality can be substantially boosted by redistribution policies and cultural processes inducing conformity to legality norms. This study highlights how legality ratings issued by institutions, when effectively communicated to consumers and combined with redistribution actions, can increase demand for legal products.