The Limits of Equality: Insights from the Israeli Kibbutz

Abstract:     
What limits the capacity of society to redistribute and provide insurance? What determines the structure of compensation in organizations aiming at income equality? This paper investigates these questions by investigating the economic and sociological forces underlying the persistence of the Israeli kibbutzim, communities based on the principle of income equality. To do this, I exploit newly-assembled data on kibbutzim, and a financial crisis in the late-1980s that differentially affected them. I find that: (1) productive individuals are the most likely to exit, and a kibbutz's wealth serves as a lock-in device that increases the value of staying; (2) higher wealth reduces exit and supports a high degree of income equality; (3) ideology contributes to income equality but it plays a lesser role than economic forces; (4) group size does not affect the degree of equality. Using a simple model, I show that these findings are consistent with an economic view of the kibbutz as providing optimal insurance without commitment to stay, namely when participation is at-will. More generally, these findings contribute to an understanding of the determinants of the sharing rule in other types of organizations, such as professional partnerships, cooperatives and labor-managed firms.

JEL Classification: H00, H21, H71, J00, J31, J61, N00, N35, P32

Accepted Paper Series