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Meritocratic Matching Can Dissolve the Efficiency-Equality Tradeoff: The Case of Voluntary Contributions Games

29 Pages Posted: 10 May 2015  

Heinrich H. Nax

ETH Zurich

Stefano Balietti

Northeastern University - Network Science Institute; Harvard University - Institute for Quantitative Social Sciences; Northeastern University - Management Information Systems Area

Ryan O. Murphy

University of Zurich - Department of Economics

Dirk Helbing

ETH Zürich - Department of Humanities, Social and Political Sciences (GESS)

Date Written: May 8, 2015

Abstract

One of the fundamental tradeoffs underlying society is that between efficiency and equality. The challenge for institutional design is to strike the right balance between these two goals. Game-theoretic models of public-goods provision under ‘meritocratic matching’ succinctly capture this tradeoff: under zero meritocracy (society is randomly formed), theory predicts maximal inefficiency but perfect equality; higher levels of meritocracy (society matches contributors with contributors) are predicted to improve efficiency but come at the cost of growing inequality. We conduct an experiment to test this tradeoff behaviorally and make the astonishing finding that, notwithstanding theoretical predictions, higher levels of meritocracy increase both efficiency and equality, that is, meritocratic matching dissolves the tradeoff. Fairness considerations can explain the departures from theoretical predictions including the behavioral phenomena that lead to dissolution of the efficiency-equality tradeoff.

Keywords: public-goods, meritocratic matching, efficiency, fairness, inequality

JEL Classification: C92, D02, D63, H41

Suggested Citation

Nax, Heinrich H. and Balietti, Stefano and Murphy, Ryan O. and Helbing, Dirk, Meritocratic Matching Can Dissolve the Efficiency-Equality Tradeoff: The Case of Voluntary Contributions Games (May 8, 2015). Available at SSRN: https://ssrn.com/abstract=2604140 or http://dx.doi.org/10.2139/ssrn.2604140

Heinrich H. Nax

ETH Zurich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Stefano Balietti (Contact Author)

Northeastern University - Network Science Institute ( email )

177 Huntington Avenue
Boston, MA MA 02115
United States

Harvard University - Institute for Quantitative Social Sciences ( email )

1737 Cambridge St
Cambridge, MA 02115
United States

Northeastern University - Management Information Systems Area ( email )

Boston, MA 02115
United States

Ryan O. Murphy

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Dirk Helbing

ETH Zürich - Department of Humanities, Social and Political Sciences (GESS) ( email )

ETH Zurich - Swiss Federal Institute of Technology
Clausiusstrasse 50
Zurich, 8092
Switzerland

HOME PAGE: http://www.coss.ethz.ch

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