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Risk, Entitlements and Fairness Bias: Explaining Preferences for Redistribution in Multi-person Setting

Author

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  • Mitesh Kataria

    (Max Planck Institute of Economics, Strategic Interaction Group, Jena)

  • Natalia Montinari

    (Max Planck Institute of Economics, Strategic Interaction Group, Jena)

Abstract

Researchers frequently studied the casual relationships of other-regarding preferences by applying experimental methods in bilateral settings (e.g., dictator game and ultimatum game). We use a framed experiment on taxes to study preferences for redistribution in a multi-person setting. We find presence of heterogeneous preferences with a substantial share of tax rate choices in line with both payoff maximization and other-regarding preferences. Notably, our data is not consistent with inequality aversion but points to other forms of other-regarding preferences, as fairness and altruism. By manipulating how subjects are assigned to a given level of pre-tax income, we vary the individual entitlements. We find a difference in the willingness to redistribute income when comparing the treatment where pre-tax income is assigned by relative performance in a production task (a general knowledge quiz) to the treatment where pre-tax income is assigned by luck. We do not find any significant difference in comparison to the intermediate treatment where pre-tax income is assigned by a combination of luck and performance. The perception of a "fair" tax is different depending on whether subjects' pre-tax income is below or above average, which is in line with a fairness bias. Finally, subjects not knowing whether their pre-tax income is below or above the average when choosing the tax rate behave as if they were more other-regarding.

Suggested Citation

  • Mitesh Kataria & Natalia Montinari, 2012. "Risk, Entitlements and Fairness Bias: Explaining Preferences for Redistribution in Multi-person Setting," Jena Economics Research Papers 2012-061, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2012-061
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    References listed on IDEAS

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    Cited by:

    1. Romain Espinosa & Bruno Deffains & Christian Thöni, 2020. "Debiasing preferences over redistribution: an experiment," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 55(4), pages 823-843, December.
    2. Chunliang Feng & Yi Luo & Ruolei Gu & Lucas S Broster & Xueyi Shen & Tengxiang Tian & Yue-Jia Luo & Frank Krueger, 2013. "The Flexible Fairness: Equality, Earned Entitlement, and Self-Interest," PLOS ONE, Public Library of Science, vol. 8(9), pages 1-1, September.
    3. Lea Cassar & Arnd H. Klein, 2019. "A Matter of Perspective: How Failure Shapes Distributive Preferences," Management Science, INFORMS, vol. 65(11), pages 5050-5064, November.
    4. Deffains, Bruno & Espinosa, Romain & Thöni, Christian, 2016. "Political self-serving bias and redistribution," Journal of Public Economics, Elsevier, vol. 134(C), pages 67-74.
    5. Lea Cassar & Arnd H. Klein, 2017. "A Matter of Perspective: How Experience Shapes Preferences for Redistribution," CESifo Working Paper Series 6302, CESifo.

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    More about this item

    Keywords

    Redistribution; Entitlements; Fairness Bias; Risk; Framed Tax Experiment;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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