The Dynamic Interplay of Inequality and Trust - An Experimental Study

31 Pages Posted: 18 Oct 2007

See all articles by Ben Greiner

Ben Greiner

Vienna University of Economics and Business

Axel Ockenfels

University of Cologne - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Peter Werner

Maastricht University - Department of Economics

Date Written: December 2007

Abstract

We study the interplay of inequality and trust in a dynamic game, in which trust increases efficiency and thus allows higher growth of the experimental 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 difference seems partly due to the fact that equal starting positions increase subjects' inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.

Keywords: inequality, trust, growth, laboratory experiments

JEL Classification: C73, C92, D63, E25, O15

Suggested Citation

Greiner, Ben and Ockenfels, Axel and Werner, Peter, The Dynamic Interplay of Inequality and Trust - An Experimental Study (December 2007). CESifo Working Paper Series No. 2173. Available at SSRN: https://ssrn.com/abstract=1021234

Ben Greiner (Contact Author)

Vienna University of Economics and Business

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Axel Ockenfels

University of Cologne - Department of Economics ( email )

Albertus Magnus Platz
Cologne 50923
Germany

HOME PAGE: http://ockenfels.uni-koeln.de/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Peter Werner

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

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