Promoting Competition or Helping Less-Endowed? Distributional Preferences and Collective Institutional Choices under Intra-Group Inequality

Kamei, Kenju (2014): Promoting Competition or Helping Less-Endowed? Distributional Preferences and Collective Institutional Choices under Intra-Group Inequality.

Abstract

With heterogeneous endowments, subjects collectively choose between a lottery contest, where only one individual in a group receives an award, and a public good which benefits the less-endowed more. Unlike standard theoretical predictions, the majority of the subjects vote for the public good regardless of the award size in the contest. Also, the subjects’ average risk preferences don’t differ by voter type. Furthermore, their payoffs, whether ex-ante expected payoffs based on beliefs or ex-post payoffs, are more equally distributed in the public good regime. These suggest that people’s collective institutional choices may be driven by inequality-averse concerns in our context.

• Item Type: MPRA Paper
• Language: English
• Keywords: heterogeneity, experiment, cooperation, competition, public goods, inequality
• Subjects: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D70 - General; H - Public Economics > H4 - Publicly Provided Goods

References

Akerlof, George and Janet Yellen, 1988. “Fairness and Unemployment.” American Economic Review 78(2): 44-49.

Balafoutas, Loukas, Rudolf Kerschbamer, and Matthias Sutter, 2012. “Distributional preferences and competitive behavior.” Journal of Economic Behavior & Organization 83(1): 125-135.

Bartling, Bjorn, Ernst Fehr, Michel Andre Marechal, and Daniel Schunk. 2009. “Egalitarianism and Competitiveness.” American Economic Review 99(2): 93-98.

Bohnet, Irs, Fiona Greig, Benedikt Herrmann, and Richard Zeckhauser, 2008. “Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States.” American Economic Review 98(1): 294-310.

Bohnet, Irs, and Richard Zeckhauser, 2004. “Trust, Risk and Betrayal.” Journal of Economic Behavior & Organization 55(4): 467-484.

Bolton, Gary E., and Axel Ockenfels, 2000. “ERC: A Theory of Equity, Reciprocity, and Competition.” American Economic Review 90(1): 166-193.

Brock, Michelle, Andreas Lange and Erkut Ozbay, 2013. “Dictating the Risk: Experimental Evidence on Giving in Risky Environments.” American Economic Review 103(1): 415-37.

Buckley, Edward, and Rachel Croson, 2006. “Income and wealth heterogeneity in the voluntary provision of linear public goods.” Journal of Public Economics 90(4-5): 935–955.

Chan, Kenneth, Stuart Mestelman, Rob Moir and Andrew Muller, 1996. “The Voluntary Provision of Public Goods under Varying Income Distributions.” Canadian Journal of Economics 29(1): 54-69.

Chen, Josie I. and Kenju Kamei, 2014. “Expressing Emotion and Fairness Crowding-out in an Ultimatum Game with Incomplete Information,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2408496.

Cherry, Todd, Stephan Kroll and Jason Shogren, 2005. “The Impact of Endogenous Heterogeneity and Origin on Public Good Contribution: Evidence from the Lab.” Journal of Economic Behavior & Organization 57(3): 357-65.

Corazzini, Luca, Marco Faravelli and Luca Stanca, 2010. “A Prize to Give for: An Experiment on Public Good Funding Mechanism.” Economic Journal 120(547): 944-967.

Dal Bó, Pedro, Andrew Foster, and Louis Putterman, 2010. “Institutions and Behavior: Experimental Evidence on the Effects of Democracy.” American Economic Review 100(5): 2205-29.

Dufwenberg, Martin and Georg Kirchsteiger, 2004. “A Theory of Sequential Reciprocity.” Games and Economic Behavior 47(2): 268-298.

Ertan, Arhan, Talbot Page and Louis Putterman, 2009. “Who to punish? Individual decisions and majority rule in mitigating the free rider problem,” European Economic Review 53(5): 495-511.

Falk, Armin and Urs Fischbacher, 2006. “A Theory of Reciprocity.” Games and Economic Behavior 54(2): 293-315.

Fehr, Ernst, Holger Herz, and Tom Wilkening, 2013. “The Lure of Authority: Motivation and Incentive Effects of Power.” American Economic Review 103(4): 1325-59.

Fehr, Ernst and Klaus M. Schmidt, 1999. “A theory of fairness, competition, and cooperation,” Quarterly Journal of Economics 114(3): 817-868.

Fehr, Ernst and Klaus M. Schmidt, 2006. “The Economics of Fairness, Reciprocity and Altruism – Experimental Evidence and New Theories.” pp. 615-691 in Kolm, S.-G., Ythier, J.M. (Eds.), Handbook of the Economics of Giving, Altruism and Reciprocity. North Holland.

Fischbacher, Urs, 2007. “z-Tree: Zurich Toolbox for Ready-made Economic Experiments.” Experimental Economics 10(2): 171-178.

Fisher, Joseph, Mark Isaac, Jeffrey Schatzberg and James M. Walker, 1995. “Heterogeneous Demand for Public Goods: Behavior in the Voluntary Contributions Mechanism,” Public Choice 85(3/4): 249-266.

Harms, Philipp and Stefan Zink, 2003, “Limits to Redistribution in a Democracy: A Survey,” European Journal of Political Economy 19: 651-668.

Holt, Charles A., and Susan K. Laury, 2002. “Risk Aversion and Incentive Effects.” American Economic Review 92(5): 1644-55.

Kamei, Kenju, 2014. “Democracy and Resilient Pro-social Behavioral Change: An Experimental Study,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1756225.

Kamei, Kenju, Louis Putterman, and Jean-Robert Tyran, forthcoming, “State or nature? Endogenous formal versus informal sanctions in the voluntary provision of public goods.” Experimental Economics.

Kelly, Morgan, 2000. “Inequality and Crime.” Review of Economics and Statistics 82(4): 530-539.

Lazear, Edward, 1989. “Pay Equality and Industrial Policies.” Journal of Political Economy 97(3): 561-580. Leech, Dennis, 2002. “Voting Power in the Governance of the International Monetary Fund.” Annals of Operations Research 109(1-4): 375-97.

Markussen, Thomas, Ernesto Reuben, and Jean-Robert Tyran, 2014. “Competition, Cooperation and Collective Choice.” Economic Journal 124(574): F163–F195.

Maurice, Jonathan, Agathe Rouaix and Marc Willinger, 2013. “Income Redistribution and Public Good Provision: An Experiment,” International Economic Review 54 (3): 957–975.

Niederle, Muriel and Lise Vesterlund, 2007. “Do Women Shy Away From Competition? Do Men Compete Too Much?” Quarterly Journal of Economics 122(3): 1067-101.

Piketty, Thomas, 2014. Capital in the Twenty-First Century, Belknap Press.

Putterman, Louis, Jean-Robert Tyran and Kenju Kamei, 2011. “Public goods and voting on formal sanction schemes.” Journal of Public Economics 95(9-10): 1213-1222.

Rabin, Matthew, 1993. “Incorporating Fairness Into Game Theory and Economics.” American Economic Review 83(5): 1281-1302.

Rapkin, David, and Jonathan Strand, 2006. “Reforming the IMF's Weighted Voting System.” World Economy 29(3): 305-24.

Stiglitz, Joseph, 2012. The Price of Inequality: How Today's Divided Society Endangers Our Future. W. W. Norton & Company.

Trevor, Charlie, Greg Reilly and Barry Gerhart, 2012. “Reconsidering Pay Dispersion’s Effect on the Performance of Interdependent Work: Reconciling Sorting and Pay Inequality,” Academy of Management Journal 55(3): 585-610.

Tyran, Jean-Robert, and Lar Feld, 2006, “Achieving Compliance when Legal Sanctions are Non-deterrent.” Scandinavian Journal of Economics 108(1), 135--56.

Zelmer, Jennifer, 2003, “Linear Public Goods Experiments: A Meta-Analysis.” Experimental Economics 6(3): 299-310.