When Is Inequality Fair? An Experiment on the Effect of Procedural Justice and Agency

Abstract

We investigate how the perceived fairness of an income distribution depends on the beliefs about the process that generates the inequality. Specifically, we examine how two crucial features of this process affect fairness views: (1) Procedural justice – equal treatment of all; (2) Agency – one’s ability to determine his/her income. We do this in a lab experiment by differentially varying subjects’ ability to influence their earnings. Comparison of ex-post redistribution decisions of total earnings under different conditions indicate both agency and procedural justice to matter for fairness. Highlighting the importance of agency, we observe lower redistribution of unequal earnings resulting from risk when risk is chosen freely. Highlighting the importance of procedural justice, we find introduction of inequality of opportunity to significantly increase redistribution. Despite this increase, under inequality of opportunity, the share of subjects redistributing none remain close to the share of subjects redistributing fully revealing an underlying heterogeneity in the population about how fairness views should account for inequality of opportunity.

Keywords: fairness, justice, inequality, redistribution, agency, risk

JEL Classification: C91, D63