Formalized and spontaneous cooperation as substitutes: Crowding out in the cooperative coffee sector of Ngozi, Burundi

Abstract

This study examines the crowding out of informal institutions after the introduction of formalized collective action in isolated and subsistence-oriented regions, using the case of coffee cooperatives in Ngozi Province, Burundi. Using experimental economics, we provide evidence that cooperative membership can corrode existing intrinsic motivations to cooperate spontaneously by replacing it with incentivized, extrinsic motivations for formalized cooperation. Using a two-way censored tobit, we estimate a model explaining farmers’ contributions to a standard Public Goods Game as a measure of spontaneous cooperation. Contributions to a standard Dictator and Lottery Task Game were used as controls, and found to be strongly and positively correlated to the dependent variable. Cooperative membership, on the other hand, was found to be significantly negatively correlated to spontaneous cooperation. Men were found to contribute more to the Public Goods Game, as were farmers who are less food secure. We conclude crowding out takes place as incentives for formalized cooperation and serves as a substitute for spontaneous cooperation in regions with little formal institutions. If cooperation is indeed an important factor for development, this crowding out effect must be considered.