When equality trumps reciprocity

Abstract

Inequity aversion and reciprocity have been identified as two primary motivations underlying human decision making. However, because income and wealth inequality exist to some degree in all societies, these two key motivations can point to different decisions. In particular, when a beneficiary is less wealthy than a benefactor, a reciprocal action can lead to greater inequality. In this paper we report data from a trust game variant where trustees' responses to kind intentions generate inequality in favor of investors. In relation to a standard trust game treatment where trustees' responses reduce inequality, the proportion of non-reciprocal decisions is twice as large when reciprocity promotes inequality. Moreover, we find investors expect that this will be the case. Overall, we find a majority (more than half) of trustees do not reciprocate when reciprocity increases inequality that favors investors. Our results call attention to the potential importance of inequality in principal-agent relationships and have important implications for policies aimed at promoting cooperation.JEL classification: C91; C72; D63 Acknowledgment: We wish to thank

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