Participaci´ on en Sistemas Industriales Regionales

4.2.1 Inequality and cooperation

Previous experimental studies that target the association between inequality, on the one hand, and cooperation, on the other hand, indi- cate a complex relationship by reporting inconsistent results. While some studies find positive effects of inequality on cooperative behavior (e.g., Chan et al., 1996), others find negative effects (e.g., Anderson et al., 2008) or no effect at all (e.g., Sadrieh & Verbon, 2006). These vary- ing results might be partly explained by recent research suggesting that the origin of inequality is especially important when determining its eventual effect on cooperation (Greiner et al., 2012; Haile et al., 2008).

By conducting an experiment based on a repeated trust game3_, Greiner and colleagues (2012) find different behavioral patterns for ex- ogenously and endogenously induced inequality. The authors report that trust is initially low, though relatively stable, in an exogenous ine- quality condition, thus eventually exceeding trust in an endogenous condition. They ascribe the latter part of this result to the different in- formational value of endogenous and exogenous inequality. In their ex- periment, endogenous inequality is necessarily a consequence of previ- ous untrustworthy behavior because all participants initially receive the same endowment and can only generate higher earnings than others by exploiting their trust. By contrast, exogenous inequality cannot be used to make the same deduction because the participants’ initial endow- ments already differ, which, after a few rounds, makes it impossible to tell whether a participant’s considerable wealth results from a high ini- tial endowment or untrustworthy behavior. Hence, their results suggest that people use the level of endogenous inequality to deduce previous behaviors and reduce their risk by using these insights in their deci- sions to trust. Because trust is closely related to cooperation and has

3 _{The trust game is a behavioral paradigm created by Berg, Dickhaut, and McCabe}

(1995), which is also called investment game. It is mainly used as a behavioral meas- ure of trust and trustworthiness. However, as a certain amount of trust is essential for cooperation, inferences about cooperative behavior might be deduced from its results as well.

even previously been called “the expectation of cooperation” (Pruitt & Kimmel, 1977: 375), it can be assumed that decreasing levels of trust ultimately also lead to diminishing cooperation.

Indeed, in a related experiment Haile et al. (2008) find that endog- enously implemented inequality (but not exogenously implemented ine- quality) affects cooperation in a version of the public good game. In their experiment, inequality either is implemented randomly or results from the choice of a dictator who personally benefits from higher inequality, as it eventually increases his or her outcome. The experimental findings show that inequality only influences public good contributions if it re- sults from the choice of the dictator. In this case, higher inequality de- creases contributions to the public good. Hence, the two presented studies indicate that the source of inequality is crucial in determining its consequences and suggest that particularly endogenous inequality hampers cooperation.

Because the origin of inequality seems to be critical for its even- tual effect on cooperation, it is surprising that a common method of pol- icy-making and an important source of inequality has been mostly ne- glected in experimental research, i.e., majority choices. Previous re- search investigated the impact of democratically chosen institutions, such as sanctioning and rewarding mechanisms, on cooperation (see Balafoutas, Kocher, Putterman, & Sutter, 2013; Dal Bó, Foster, & Putterman, 2010; Kosfeld, Okada, & Riedl, 2009; Putterman, Tyran, & Kamei, 2011; Sutter, Haigner, & Kocher, 2010; Walker, Gardner, Herr, & Ostrom, 2000); however, to the best of our knowledge, the impact of a democratically chosen wealth distribution on cooperative behavior has yet to be explored.

4.2.2 Democratic determination of inequality

In democratic welfare states, policies and redistribution are ulti- mately the result of majority decisions. For instance, voters empower parties that promote a flat or a progressive taxation system and thus select different degrees of redistribution, leading to different degrees of

inequality. Hence, a society’s level of inequality might be thought of as the result of a democratic vote.

One factor that people are likely to consider when they decide on the level of inequality is their personal position in the society’s social hierarchy. From a merely rational perspective, it can be argued that people should always favor distributions that financially benefit their class and, in turn, themselves the most. Hence, facing the decision be- tween a society with a low degree of inequality and a society with a high degree of inequality, those who financially benefit from more inequality should prefer the respective society and vice versa for those who benefit from less inequality.

However, empirical findings have shown that a notable proportion of people generally value equal wealth and income distributions more than unequal ones (Dawes et al., 2007; Lotz & Fetchenhauer, 2012; Norton & Ariely, 2011). Recently, Norton and Ariely (2011) gave a repre- sentative sample of US citizens the opportunity to design a society in which wealth is ideally distributed. The authors find that people of all regarded demographic groups wish for far more equal wealth distribu- tions those observed in reality. As such, an overwhelming majority (92% of participants) prefers a society with a Swedish wealth distribution to a society with an American wealth distribution. Experimental research has shown that this preference for equally distributed wealth persists, even if more equality results in personal financial losses and less socie- tal wealth in total (Lotz & Fetchenhauer, 2012). In accordance with the- se results, scholars have argued that inequality and justice concerns are integrated into human decision-making, leading people to be ine- quality averse to some degree (e.g., Fehr & Schmidt, 1999; Bolton & Ockenfels, 2000). Therefore, decisions regarding the society’s level of inequality should be made depending on an individual’s personal level of inequality aversion and his or her financial incentives.