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Inequality, Inequity Aversion, and the Provision of Public Goods

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Author Info

  • Kölle, Felix

    ()
    (University of Cologne)

  • Sliwka, Dirk

    ()
    (University of Cologne)

  • Zhou, Nannan

    ()
    (University of Cologne)

Abstract

We investigate the effects of inequality in wealth on the incentives to contribute to a public good when agents are inequity averse and may differ in ability. We show that equality may lead to a reduction of public good provision below levels generated by purely selfish agents. But introducing inequality motivates more productive agents to exert higher efforts and help the group to coordinate on equilibria with less free-riding. As a result, less able agents may benefit from initially disadvantageous inequality. Moreover, the more inequity averse the agents, the more inequality should be imposed even by an egalitarian social planner.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5514.

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Length: 34 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5514

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Related research

Keywords: public goods; inequality; inequity aversion; social welfare; voluntary provision; income distribution; heterogeneity;

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References

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  1. Pedro Rey-Biel, 2007. "Inequity Aversion and Team Incentives," Working Papers 319, Barcelona Graduate School of Economics.
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Cited by:
  1. Felix Koelle, 2012. "Heterogeneity and Cooperation in Privileged Groups: The Role of Capability and Valuation on Public Goods Provision," Cologne Graduate School Working Paper Series, Cologne Graduate School in Management, Economics and Social Sciences 03-08, Cologne Graduate School in Management, Economics and Social Sciences.
  2. Abeler, Johannes & Altmann, Steffen & Goerg, Sebastian & Kube, Sebastian & Wibral, Matthias, 2011. "Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics," IZA Discussion Papers 5727, Institute for the Study of Labor (IZA).
  3. David, Gill & Rebecca, Stone, 2012. "Desert and inequity aversion in teams," MPRA Paper 36864, University Library of Munich, Germany.

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