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Voluntary versus Compulsory Solidarity: Theory and Experiment

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  • Werner Güth
  • Matthias Sutter
  • Harrie Verbon

Abstract

We present an overlapping-generations model with two interacting teams, where young team members earn an income, whereas old team members depend on either intrateam transfers from young members (voluntary solidarity) or tax-financed transfers (compulsory solidarity). We derive the individually and team-specifically optimal decisions and present further behavioral hypotheses, including the crowding out of voluntary by compulsory solidarity. We test our hypotheses in an experimental study and examine (1) whether raising taxes crowds out voluntary transfers, (2) how income distributions influence voluntary and compulsory solidarity, and (3) whether participants prefer more to less compulsory solidarity.

Suggested Citation

  • Werner Güth & Matthias Sutter & Harrie Verbon, 2006. "Voluntary versus Compulsory Solidarity: Theory and Experiment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(2), pages 347-363, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200606)162:2_347:vvcsta_2.0.tx_2-1
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    References listed on IDEAS

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    1. Kenneth S. Chan & Stuart Mestelman & Rob Moir & R. Andrew Muller Moir, 1996. "The Voluntary Provision of Public Goods under Varying Income Distributions," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 54-69, February.
    2. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    3. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
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    Cited by:

    1. Bolle, Friedel & Liepmann, Hannah & Vogel, Claudia, 2012. "How much social insurance do you want? An experimental study," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1170-1181.

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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