Other people’s money: Preferences for equality in groups

Economic policy decisions often involve a trade-off between equality and efficiency implemented through income redistribution. We test whether people are less likely to purchase equality with their own money versus transferring someone else’s money to a low-income group member which reduces inequality at the cost of group efficiency. We synthesize Andreoni and Miller (2002) and Engelmann and Strobel (2004) by using an experiment that allows us to measure willingness-to-pay for equality both with own income and other people’s money. Subjects are more likely to purchase equality with others’ money at the cost of group efficiency. The average individual prefers an outcome with more own income and more inequality. Willingness-to-pay for equality is greater than zero when using others’ money, while subjects are sensitive to prices even when making purchases with others’ money. When the cost in terms of group efficiency is very high, subjects usually do not choose to reduce inequality. We find the same outcome for majority-rule decisions and when subjects decide as a dictator.