Efficiency and Voluntary Redistribution under Inequality

50 Pages Posted: 16 Mar 2017

See all articles by Masaki Aoyagi

Masaki Aoyagi

Osaka University - Institute of Social and Economic Research (ISER)

Naoko Nishimura

Ritsumeikan University

Yoshitaka Okano

Kochi University of Technology - Research Center for Social Design Engineering, School of Management

Date Written: March 13, 2017

Abstract

This paper presents an experimental analysis of 2×2 coordination games in which player 1 earns a substantially higher payoff than player 2 except in the inefficient equilibrium where they earn the same payoffs. The main focus is on the comparison of two treatments with and without the ex post redistribution stage in which both players may voluntarily transfer their payoffs earned in the game to the other player. We find that (1) the transfer opportunity raises the probability of coordination on an efficient equilibrium, (2) a transfer from player 1 to player 2 is positive, and is higher when player 2 chooses the action corresponding to the efficient equilibrium, and hence (3) the transfer opportunity tends to improve the efficiency and equity of the final outcome. Furthermore, these tendencies are stronger when the two players have conflicting interests over the two equilibria than when they have common interests.

Keywords: Heterogeneity, Equity, Efficiency, Transfer, Reciprocity, Laboratory, Experiments

JEL Classification: C72, D03, D31, D63

Suggested Citation

Aoyagi, Masaki and Nishimura, Naoko and Okano, Yoshitaka, Efficiency and Voluntary Redistribution under Inequality (March 13, 2017). ISER Discussion Paper No. 992, Available at SSRN: https://ssrn.com/abstract=2932577 or http://dx.doi.org/10.2139/ssrn.2932577

Masaki Aoyagi (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

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Japan
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Naoko Nishimura

Ritsumeikan University ( email )

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Noji-higashi
Kusatsu, Shiga 525-8577
Japan

Yoshitaka Okano

Kochi University of Technology - Research Center for Social Design Engineering, School of Management ( email )

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