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Preferences for Redistribution and Pensions: What Can We Learn from Experiments?

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  • Tausch Franziska
  • Potters Jan
  • Riedl Arno

    (METEOR)

Abstract

Redistribution is an inevitable feature of collective pension schemes. It is still largely an open question what people‘s preferences are regarding redistribution—both through pensions schemes as well as more generally. It would seem that economists have little to say about this question, as they routinely assume that people are predominantly selfish. Economic experiments have revealed, however, that most people do in fact have redistributional preferences that are not merely inspired by self-interest. This paper reviews this experimental evidence. For that purpose we distinguish between three fundamentally different types of situations. The first deals with distributional preferences behind a veil of ignorance. What type of income distribution do people prefer when they do not know whether they will end up in an advantaged or disadvantaged position? A main result here is that, contrary to what John Rawls suggested, people do not prefer the maximin rule, but rather favor a utilitarian justice concept appended with a safety net for the poorest. Another result is that people are willing to accept income inequalities—as long as these are due to choices for which people can be held accountable. In the second type of situation, individuals make choices in front of the veil of ignorance and know their position. Experiments show that preferences for redistribution are strongly dependent on a person‘s own position. People in a relatively disadvantaged position want more redistribution than those in a relatively advantaged position, which shows that preferences for redistribution are clearly affected by self-interest. Still, even many of those in an advantaged position display a preference forredistribution. This holds, in particular, if inequality is due to chance rather than effort. There are also significant differences in preferences between the genders and between people with different political orientations. Finally, we discuss situations in which income is determined by interdependent rather than individual choices. People are dependent upon the cooperation of others for the achievement of their (income) goals. Experiments show that behavioral factors such as trust and reciprocity play a crucial role, and they also indicate that these factors are strongly affected by the institutional setting. In the closing parts of the paper we discuss whether and how these experimental results speak to the redistribution issues of pensions. For example, do they argue for or against mandatory participation? Should we have less redistribution and more actuarial fairness? How does this depend on the type of redistribution involved?

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Bibliographic Info

Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 014.

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Date of creation: 2011
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Handle: RePEc:dgr:umamet:2011014

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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm

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Keywords: public economics ;

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  1. D'Exelle, Ben & Riedl, Arno, 2010. "Directed Generosity and Network Formation: Network Dimension Matters," IZA Discussion Papers 5356, Institute for the Study of Labor (IZA).
  2. Gachter, Simon & Riedl, Arno, 2005. "Moral property rights in bargaining with infeasible claims," Open Access publications from Maastricht University urn:nbn:nl:ui:27-16453, Maastricht University.
  3. Ben-Ner, Avner & Putterman, Louis & Kong, Fanmin & Magan, Dan, 2004. "Reciprocity in a two-part dictator game," Journal of Economic Behavior & Organization, Elsevier, vol. 53(3), pages 333-352, March.
  4. Deken, J. de & Ponds, E.H.M. & Riel, B. van, 2006. "Social solidarity," Open Access publications from Tilburg University urn:nbn:nl:ui:12-348135, Tilburg University.
  5. Simon Gächter & Arno Riedl, 2006. "Dividing Justly in Bargaining Problems with Claims," Social Choice and Welfare, Springer, vol. 27(3), pages 571-594, December.
  6. Gueth, W. & Offerman, T. & Potter, J. & Strobel, M., 2002. "Are family transfers crowded out by public transfers?"," Open Access publications from Maastricht University urn:nbn:nl:ui:27-4951, Maastricht University.
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