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Redistributive Politics and Market Efficiency: An Experimental Study

  • Jens Großer
  • Ernesto Reuben

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.

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Paper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 44.

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Date of creation: 12 Nov 2009
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Handle: RePEc:kls:series:0044
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