IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Redistributive Politics and Market Efficiency: An Experimental Study

  • Großer, Jens

    ()

    (Florida State University)

  • Reuben, Ernesto

    ()

    (New York University, Abu Dhabi)

We study the interaction between competitive markets that produce large but unequally distributed welfare gains and elections through which the poor majority can redistribute income away from the rich minority. In our simple laboratory democracy, subjects first earn their income by trading in a double auction market and thereafter vote on redistributive policies in two-candidate elections. In addition, in one of the treatments subjects can attempt to influence the candidates’ policy choices by transferring money to them. We observe very high levels of redistribution – even when transfers to candidates are possible – with little effect on market efficiency. Overall, the experimental results are explained by our equilibrium predictions.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ftp.iza.org/dp4549.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4549.

as
in new window

Length: 41 pages
Date of creation: Nov 2009
Publication status: published in: Journal of Public Economics, 2013, 101, 39-52
Handle: RePEc:iza:izadps:dp4549
Contact details of provider: Postal:
IZA, P.O. Box 7240, D-53072 Bonn, Germany

Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jean Tirole & Roland Benabou, 2004. "Belief in a Just World and Redistributive Politics," 2004 Meeting Papers 15, Society for Economic Dynamics.
  2. Martin Dufwenberg & Paul Heidues & Georg Kirchsteiger & Frank Riedel & Joel Sobel, 2008. "Other-Regarding Preferences in General Equilibrium," Working Papers ECARES 2008-011, ULB -- Universite Libre de Bruxelles.
  3. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
  4. Ruben Durante & Louis Putterman & Joël Weele, 2014. "Preferences For Redistribution And Perception Of Fairness: An Experimental Study," Journal of the European Economic Association, European Economic Association, vol. 12(4), pages 1059-1086, 08.
  5. Gjerstad, S. & Dickhaut, J., 1995. "Price Formation in Double Auctions," Papers 284, Minnesota - Center for Economic Research.
  6. Timothy Cason & Lata Gangadharan & Nikos Nikiforakis, 2009. "Can Real?Effort Investments Inhibit the Convergence of Experimental Markets?," Department of Economics - Working Papers Series 1089, The University of Melbourne.
  7. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-137, February.
  8. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
  9. Sausgruber, Rupert & Tyran, Jean-Robert, 2011. "Are we taxing ourselves?: How deliberation and experience shape voting on taxes," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 164-176, February.
  10. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  11. Armin Falk & Urs Fischbacher, . "A Theory of Reciprocity," IEW - Working Papers 006, Institute for Empirical Research in Economics - University of Zurich.
  12. Jacob K. Goeree & Charles A. Holt, 2001. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," American Economic Review, American Economic Association, vol. 91(5), pages 1402-1422, December.
  13. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
  14. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
  15. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
  16. Epple, Dennis & Romer, Thomas, 1991. "Mobility and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 828-858, August.
  17. Potters, J.J.M. & van Winden, F.A.A.M., 2000. "Professionals and students in a lobbying experiment - Professional rules of conduct and subject surrogacy," Other publications TiSEM 964c6542-3994-4088-a7e6-c, Tilburg University, School of Economics and Management.
  18. Jess Benhabib & Adam Przeworski, 2006. "The political economy of redistribution under democracy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 271-290, October.
  19. Alesina, Alberto & Giuliano, Paola, 2009. "Preferences for Redistribution," IZA Discussion Papers 4056, Institute for the Study of Labor (IZA).
  20. Rupert Sausgruber & Jean-Robert Tyran, . "Testing the Mill hypothesis of fiscal illusion," Discussion Papers 04-18, University of Copenhagen. Department of Economics, revised Sep 2004.
  21. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
  22. 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.
  23. Milanovic,Branko & Lindert, Peter H. & Williamson, Jeffrey G., 2007. "Measuring ancient inequality," Policy Research Working Paper Series 4412, The World Bank.
  24. Potters, Jan & van Winden, Frans, 1992. "Lobbying and Asymmetric Information," Public Choice, Springer, vol. 74(3), pages 269-92, October.
  25. Ruffle, Bradley J., 2005. "Tax and subsidy incidence equivalence theories: experimental evidence from competitive markets," Journal of Public Economics, Elsevier, vol. 89(8), pages 1519-1542, August.
  26. Daniel Friedman, 1982. "Price Formation in Double Auction Markets," UCLA Economics Working Papers 278, UCLA Department of Economics.
  27. Richard Mckelvey & Thomas Palfrey, 1998. "Quantal Response Equilibria for Extensive Form Games," Experimental Economics, Springer;Economic Science Association, vol. 1(1), pages 9-41, June.
  28. World Bank, 2007. "The World Bank Annual Report 2007," World Bank Publications, The World Bank, number 7534.
  29. Ben Greiner, 2004. "The Online Recruitment System ORSEE - A Guide for the Organization of Experiments in Economics," Papers on Strategic Interaction 2003-10, Max Planck Institute of Economics, Strategic Interaction Group.
  30. Bénabou, Roland & Ok, Efe A, 1998. "Social Mobility and the Demand for Redistribution: the POUM Hypothesis," CEPR Discussion Papers 1955, C.E.P.R. Discussion Papers.
  31. Loukas Balafoutas & Martin G. Kocher & Louis Putterman & Matthias Sutter, 9/01. "Equality, equity, and incentives: An experiment," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 10-13, School of Economics, University of East Anglia, Norwich, UK..
  32. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  33. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 111-111.
  34. Loukas Karabarbounis, 2011. "One Dollar, One Vote," Economic Journal, Royal Economic Society, vol. 121(553), pages 621-651, 06.
  35. Fong, Christina, 2001. "Social preferences, self-interest, and the demand for redistribution," Journal of Public Economics, Elsevier, vol. 82(2), pages 225-246, November.
  36. Campante, Filipe R., 2011. "Redistribution in a model of voting and campaign contributions," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 646-656, August.
  37. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
  38. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  39. Alberto Alesina & Eliana La Ferrara, 2001. "Preferences for Redistribution in the Land of Opportunities," Harvard Institute of Economic Research Working Papers 1936, Harvard - Institute of Economic Research.
  40. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
  41. McKelvey, Richard D. & Palfrey, Thomas R., 1994. "Quantal Response Equilibria For Normal Form Games," Working Papers 883, California Institute of Technology, Division of the Humanities and Social Sciences.
  42. Justin Esarey & Timothy C. Salmon & Charles Barrilleaux, 2012. "What Motivates Political Preferences? Self-Interest, Ideology, And Fairness In A Laboratory Democracy," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 604-624, 07.
  43. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  44. Tyran, Jean-Robert & Sausgruber, Rupert, 2006. "A little fairness may induce a lot of redistribution in democracy," European Economic Review, Elsevier, vol. 50(2), pages 469-485, February.
  45. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
  46. Ben Greiner, 2004. "The Online Recruitment System ORSEE 2.0 - A Guide for the Organization of Experiments in Economics," Working Paper Series in Economics 10, University of Cologne, Department of Economics.
  47. AfDB AfDB, . "AfDB Group Annual Report 2006," Annual Report, African Development Bank, number 62 edited by Koua Louis Kouakou.
  48. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
  49. Isaac, R Mark & Walker, James M, 1988. "Communication and Free-Riding Behavior: The Voluntary Contribution Mechanism," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 585-608, October.
  50. Edgar K. Browning, 2002. "The Case Against Income Redistribution," Public Finance Review, SAGE Publishing, vol. 30(6), pages 509-530, November.
  51. van Winden, Frans, 2001. "Emotional Hazard Exemplified by Taxation-Induced Anger," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 491-506.
  52. Jens Großer & Arthur Schram, 2007. "Public Opinion Polls, Voter Turnout, and Welfare: An Experimental Study," Labsi Experimental Economics Laboratory University of Siena 014, University of Siena.
  53. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
  54. Friedman, Daniel, 1991. "A simple testable model of double auction markets," Journal of Economic Behavior & Organization, Elsevier, vol. 15(1), pages 47-70, January.
  55. Benhabib, Jess & Rustichini, Aldo, 1996. "Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
  56. Jacob K. Goeree & Jingjing Zhang, 2012. "Inefficient markets," ECON - Working Papers 072, Department of Economics - University of Zurich.
  57. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4549. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.