Group Composition of Income Types and the Absolute-Relative Framing of Public Good Contributions

Abstract

This paper examines the effect of absolute-relative framing on contributions to a public good in a group with income inequality. Group members have high and low endowments and the number of high-income members in each group varies between treatments. They make contributions without and with a minimum contribution level. We express the contribution metric either in absolute amount or as a relative proportion of a member’s initial endowment. We show that these institutional designs affect contribution behavior through shifting reference points in decisions. First, as the number of high-type members increases, the average contribution increases, especially among the low-type members in absolute framing. Second, the relative framing reduces average contribution amount, while it weakens the tendency of lowtypes to catch up with the contribution of high-types. Third, the difference in average contributions between absolute and relative conditions mostly disappears when the minimum contribution level is introduced. We discuss the implications of these results.