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Equality, Equity and Incentives: An Experiment

  • Balafoutas, Loukas
  • Kocher, Martin G.
  • Putterman, Louis
  • Sutter, Matthias

We study a fundamental conflict in economic decision-making, the trade-off between equality, equity and incentives, in a new experimental game that nests a voluntary contributions mechanism in a broader spectrum of incentive schemes. In a 2×2 design, we let subjects either vote on or exogenously encounter incentive settings while assigned unequal endowments are either task-determined or random. We find that earned endowments lead to less support for redistribution and less cooperation. Subjects' voting is influenced by egalitarian and equity concerns, in addition to self-interest. Cooperation rates respond rather continuously to incentives.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 18172.

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Date of creation: May 2013
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Publication status: Published in European Economic Review 60(2013-05): pp. 32-51
Handle: RePEc:lmu:muenar:18172
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