In the preceding sections, we have demonstrated that with the help of a simple fairness theory, many stylized facts of common-pool resource or public goods experiments can be explained. In fact, the range of experiments that have been successfully analyzed with the help of our fairness theories is even wider. Both the model by Fehr and Schmidt (1999) and that of Falk and Fischbacher (1998) are capable of predicting correctly a wide variety of seemingly contradictory experimental facts. They are, in particular, capable of reconciling the puzzling evidence that in competitive experimental markets with complete contracts, very unfair outcomes that are compatible with the predictions of the pure self-interest model can emerge, while in bilateral bargaining situations or in markets with incomplete contracts, stable deviations from the predictions of the self-interest model, in the direction of more fair and equitable outcomes, are the rule.
The basic behavioral principle that is formalized in the models is that a substantial fraction of the subjects act conditionally on what other subjects do. If others are nice or cooperative, they act cooperatively as well, but if others are hostile, they retaliate. The models also pay attention to the fact that there are large individual differences between subjects. In particular, it is assumed that there are selfish subjects who behave in the way predicted by standard economic theory and reciprocal subjects who exhibit the type of conditional behavior just mentioned. The interaction of these diverse motivations and the institutional setup is responsible for the observed experimental outcomes. If there is no institutional rule that externally enforces cooperation or that allows for sanctioning possibilities, the interaction of selfish and conditional subjects frequently leads to noncooperative outcomes. If, on the other hand, subjects dispose of sanctioning possibilities, the reciprocal subjects are able to discipline selfish players. As a consequence, more cooperative outcomes will emerge. This approach goes beyond the standard economic conception, not least because it assigns institutions a much more important role. In the presence of reciprocal and selfish subjects, institutions determine which type of preference is pivotal for the equilibrium outcome. In a sense institutions select the type of player that shapes the final result.
Of course there are several important behavioral factors that we have not addressed or that cannot be explained with the help of the presented theoretical framework. For example, there is a long tradition in social-psychological research that points to the importance of values and altruism as mechanisms to overcome the free-rider incentives inherent to social dilemma situations. Some of the literature associated with concepts of “social motives” or “social value orientation” is discussed in the Kopelman et al. paper (this volume:Chapter 4). Another alternative explanation to the one presented in the current paper comes from the literature on altruism rooted in theories of moral norm activation (Schwartz, 1977) and research on the structure of human values (Schwartz, 1992). This research has been tied to environmental resource management through studies of individual