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The Dynamic Interplay of Inequality and Trust – An Experimental Study

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  • Ben Greiner
  • Axel Ockenfels
  • Peter Werner

Abstract

We study the interplay of inequality and trust in a dynamic game, in which trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal starting positions increase subjects’ inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-12/cesifo1_wp2173.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2173.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2173

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Keywords: inequality; trust; growth; laboratory experiments;

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Cited by:
  1. Bergh, Andreas & Bjørnskov, Christian, 2013. "Trust, Welfare States and Income Equality: What Causes What?," Working Paper Series 994, Research Institute of Industrial Economics.
  2. Xiao, Erte & Bicchieri, Cristina, 2008. "When Equality Trumps Reciprocity: Evidence from a Laboratory Experiment," MPRA Paper 9375, University Library of Munich, Germany.
  3. Xiao, Erte & Bicchieri, Cristina, 2010. "When equality trumps reciprocity," Journal of Economic Psychology, Elsevier, vol. 31(3), pages 456-470, June.
  4. Vladimír Gazda & Marek Gróf & Július Horváth & Matúš Kubák & Tomáš Rosival, 2012. "Agent based model of a simple economy," Journal of Economic Interaction and Coordination, Springer, vol. 7(2), pages 209-221, October.

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