The dynamic interplay of inequality and trust—An experimental study

Abstract

We study the interplay of inequality and trust in a dynamic growth game, in which trust increases efficiency and thus allows higher growth of the laboratory economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The reason is that, with unequal initial endowments, trust depends less on wealth comparisons. As a result, with respect to efficiency, the initially more unequal economy grows slower in the short run but faster in the long run, and the disparity of wealth distributions across economies mitigates over time.

Income Heterogeneity in the Voluntary Provision of Dynamic Public Goods

“…In addition, there have been a limited number of attempts to ascertain the influence of income inequality in a dynamic setting (see e.g. Güth et al ., ; Goren et al ., ; Sadrieh and Verbon, ; Greiner et al ., ). However, these studies are considerably different from Noussair and Soo's dynamic public good game, not only in terms of their subject heterogeneity and game settings, but also their dynamic approach Goren et al .…”

“…In addition, there have been a limited number of attempts to ascertain the influence of income inequality in a dynamic setting (see e.g. Güth et al, 2002;Goren et al, 2004;Sadrieh and Verbon, 2006;Greiner et al, 2007). However, these studies are considerably different from Noussair and Soo's dynamic public good game, not only in terms of their subject heterogeneity and game settings, but also their dynamic approach Goren et al examine real time contributions in 1 Therefore, it has been possible to observe various effects of income heterogeneity (positive, negative or neutral) on voluntary contributions.…”

The Interplay of Inequality and Reference Dependence With Trust an Experimental Study

“…Consequently, unequal laboratory endowments are likely to influence behaviour according to social preferences such as altruist, positional or egalitarian proclivities. Using a growth game, 1 Greiner et al (2012) show that investments tend to be higher in situations starting with equal endowments compared to the ones starting with unequal endowments, but ultimately economies with equal endowments are outperformed by those with unequal endowments in terms of efficiency. Bac (2009) pointed out that at the equilibrium of an economy with dispersed wealth distribution, wealthy agents trust more but are less trustworthy, while relatively poor agents trust less but are more trustworthy.…”

“…Scholars examined various candidates that can shape trust relationships such as gender or income inequality (Smith, 2011;Greiner et al, 2012). Zack and Knack (2001) demonstrated in a general equilibrium growth model that trust increases with (i) the egalitarian distribution of income, (ii) the social homogeneity and (iii) the institutional strength.…”

Carbon is Forever: A Climate Change Experiment on Cooperation

“…We characterize this platform from a theoretical point of view and then study its behavioral properties via experimental methods. We designed our model in order to capture several salient characteristics of the field, such as the large income difference that exits across countries, the actual level of persistence of pollution, and the damage function that maps any stock of pollution into payoffs (Greiner et al, 2012;Bosetti et al, 2012).…”