Fairness in Winner-Take-All Markets.

Abstract

The paper reports the first experimental study on people's fairness views on extreme income inequalities arising from winner-take-all reward structures. We find that the majority of participants consider extreme income inequality generated in winner-take-all situations as fair, independent of the winning margin. Spectators appear to endorse a "factual merit" fairness argument for no redistribution: the winner deserves all the earnings because these earnings were determined by his or her performance. Our findings shed light on the present political debate on redistribution, by suggesting that people may object less to certain types of extreme income inequality than commonly assumed. JEL Classification Numbers: C91, D63

A Meritocratic Origin of Egalitarian Behavior

“…An important strand of this research investigates how the source of an inequality matters for whether it is perceived as fair. Regardless of ewhether this research uses surveys (Alesina et al, 2001;Fong, 2001;Karadja et al, 2017;Gärtner et al, 2017) or laboratory experiments (Konow 1996;2000;2009;Cappelen et al, 2007;Krawczyk, 2010;Cappelen et al, 2013;Cappelen et al, 2017;Bartling et al, 2018), the nearly unanimously reached conclusion is that inequalities that are due to luck are regarded as less fair than those rooted in performance differences. 1 We add to this literature by studying how uncertainty about the source of inequality affects distributive behavior.…”

(Not) Everyone Can Be a Winner – the Role of Payoff Interdependence for Redistribution

“…In relation to our findings, their results indicate that spectators might hold high earners responsible for the low payoffs of others if payoffs are interdependent but not if the low earner could have won simultaneously. The importance of responsibility is further stressed by Bartling et al (2018). Once people are given the opportunity to select into winner-take-all tournaments without randomness, the tournament's inequality is widely accepted.…”