Structural Identification of Heterogeneous Other-Regarding Preferences

Abstract

Using a common pool resource (CPR) game with villagers whose livelihood depends on an actual CPR, we estimate a structural model featuring altruism, reciprocity and inequity aversion. Latent class estimates tied to sociodemographic and attitudinal measures reveal that preferences for equity are widespread. We argue that incentives to reduce individual extraction exert heterogeneous effects across types: a subsidy crowds in inequity aversion and reciprocity, while a fine crowds out the latter but not the former. We illustrate our type classification with data from a gift exchange game built to elicit reciprocity. We confirm the presence of reciprocity, but show that preferences for equity remain important to explain outcomes.

Keywords: Reciprocity, altruism, inequity aversion, latent class models, policy intervention

JEL Classification: C51, C93, D63, H41, Q20