Inequality, Institutions and Cooperation

53 Pages Posted: 8 Jan 2021

See all articles by Thomas Markussen

Thomas Markussen

University of Copenhagen - Department of Economics

Smriti Sharma

United Nations - World Institute for Development Economics Research (UNU/WIDER)

Saurabh Singhal

United Nations - World Institute for Development Economics Research (UNU/WIDER)

Finn Tarp

University of Copenhagen - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2020

Abstract

We examine the effects of randomly introduced economic inequality on voluntary cooperation and whether this relationship is influenced by the quality of local institutions, as proxied by corruption. We use representative data from a large-scale lab-in-the-field public goods experiment with over 1,300 participants across rural Vietnam. Our results show that inequality adversely affects aggregate contributions, and this is on account of high endowment individuals contributing a significantly smaller share than those with low endowments. This negative effect of inequality on cooperation is exacerbated in high corruption environments. We find that corruption leads to more pessimistic beliefs about others' contributions in heterogeneous groups, and this is an important mechanism explaining our results. In doing so, we highlight the indirect costs of corruption that are understudied in the literature. These findings have implications for public policies aimed at resolving local collective action problems.

Keywords: inequality, institutions, corruption, public goods, lab-in-field experiment

JEL Classification: H41, D73, D90, O12

Suggested Citation

Markussen, Thomas and Sharma, Smriti and Singhal, Saurabh and Tarp, Finn, Inequality, Institutions and Cooperation (September 2020). Available at SSRN: https://ssrn.com/abstract=3724367 or http://dx.doi.org/10.2139/ssrn.3724367

Thomas Markussen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Smriti Sharma

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Saurabh Singhal

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

HOME PAGE: http://www.wider.unu.edu/aboutus/people/resident-researchers/en_GB/Saurabh-Singhal/

Finn Tarp

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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