Growth and Inequality in Public Good Games

48 Pages Posted: 9 Nov 2013 Last revised: 23 Aug 2014

See all articles by Simon Gaechter

Simon Gaechter

University of Nottingham; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute)

Friederike Mengel

University of Essex; Maastricht University

Elias Tsakas

Maastricht University - Department of Economics

Alexander Vostroknutov

University of Trento

Date Written: July 25, 2014

Abstract

In a novel experimental design we study dynamic public good games in which wealth is allowed to accumulate. More precisely each agent's income at the end of a period serves as her endowment in the following period. In this setting growth and inequality arise endogenously allowing us to address new questions regarding their interplay and effect on cooperation levels. We find that average cooperation levels in this setting are high (between 20-60% of endowments) and that amounts contributed do not decline over time. Introducing the possibility of punishment leads to lower group income, but less inequality within groups. In both treatments (with and w/o punishment) inequality and group income are positively correlated for poor groups (with below median income), but negatively correlated for rich groups (with above median income). There is very strong path dependence: inequality in early periods is strongly negatively correlated with group income in later periods. These results give new insights into why people cooperate and should make us rethink previous results from the literature on repeated public good games regarding the decay of cooperation in the absence of punishment.

Keywords: Public Good Game; Experiments; Game Theory; Dynamic Interdepencies; Growth; Inequality

JEL Classification: C70; C90

Suggested Citation

Gachter, Simon and Mengel, Friederike and Tsakas, Elias and Vostroknutov, Alexander, Growth and Inequality in Public Good Games (July 25, 2014). Available at SSRN: https://ssrn.com/abstract=2351717 or http://dx.doi.org/10.2139/ssrn.2351717

Simon Gachter (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Friederike Mengel

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Elias Tsakas

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Alexander Vostroknutov

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

HOME PAGE: http://www.vostroknutov.com

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