A Tale of Two Cities
Experiments on Inequality and Cooperation
Maria Bigoni
University of Bologna
Stefania Bortolotti
University of Cologne
July 16, 2016
Inequality has been increasing steadily in industrialized societies over the last decades,1 and this
has been recognized as one of the main societal challenges for Europe (Horizon 2020). Cities have
grown divided, to the extent that household income inequality measured at the city level may be even
larger than at the country level.2 Thus, affluent and extremely poor districts often coexist next to
one another, divided only by an invisible line.
Many are the possible subtle channels through which economic inequality may affect the economic
outlook. Unequal societies can generate economic inefficiencies for a variety of reasons;3 for instance
because social conflicts induce unproductive costs of control4 or because more severe credit market
imperfections foreclose opportunities for wouldbe entrepreneurs.5 While there exists robust evidence
on these factors, other mechanisms may be at play.
This project will empirically assess whether a correlation exists between economic disparities and a
society’s ability to achieve and sustain cooperation, which is commonly understood as one of the main
drivers of economic development. The main hypothesis is that increasing the gap between the haves
and haves-not may hinder the ability to establish cooperative relations with others. Socio-economic
fragmentation may indeed deplete the social fabric and sense of civicness of a city, hence hampering
the production and maintenance of the common goods. Established models in the behavioral literature
suggest two possible channels through which inequality may affect cooperation. First, it may reduce
people’s pro-social attitudes towards others, especially toward people that are better off;6 second, it
may affect people’s beliefs about others’ cooperative dispositions.7
A novel approach based on laboratory experiments will be used to tackle this long-standing problem now at the forefront of the public debate. The experimental methodology grants control over
a host of confounding factors, and offers the possibility to exogenously manipulate the variables of
1
OECD. Divided we stand: why inequality keeps rising. OECD Publisher, 2011.
This is the case for some large US cities, such as New York or San Francisco. United States Census Bureau, 2005-2009.
http://www.census.gov/prod/2011pubs/acs-16.pdf.
3
S. Bowles. The New Economics of Inequality and Redistribution. Cambridge University Press, 2012.
4
A. Jayadev and S. Bowles. “Guard labor”. In: Journal of Development Economics 79.2 (2006), pp. 328–348.
5
T. Jappelli. “Who is Credit Constrained in the U. S. Economy?” In: The Quarterly Journal of Economics 105.1
(1990), pp. 219–234, A.V. Banerjee and E. Duflo. “Giving Credit Where It Is Due”. In: Journal of Economic Perspectives
24.3 (2010), pp. 61–80.
6
E. Fehr and K.M. Schmidt. “A Theory Of Fairness, Competition, And Cooperation”. In: The Quarterly Journal of
Economics 114.3 (1999), pp. 817–868.
7
M. Rabin. “Incorporating Fairness into Game Theory and Economics”. In: American Economic Review 83.5 (1993),
pp. 1281–1302, U. Fischbacher, S. Gächter, and E. Fehr. “Are people conditionally cooperative? Evidence from a public
goods experiment”. In: Economics Letters 71.3 (2001), pp. 397–404.
2
1
interest, to an extent that is unimaginable in the field. We plan to carry out a set of experiments
with high school adolescents with different socioeconomic backgrounds. Gymnasia provide the ideal
conditions to run such an experiment: while the demographic characteristics and educational level
among students are comparable, their socioeconomic background varies widely.
In this project, we will study the interplay between one’s individual position in the social ladder
and his attitude towards cooperation. Relying on well established experimental games, it is possible
to understand if people living in an affluent neighborhood are more or less cooperative than people
living in a deprived area while keeping all other factors constant –i.e., returns from cooperation, education level, age etc. We will also be able to test whether subjects systematically discriminate, by
conditioning their cooperativeness on the economic background of their counterpart. If for instance
the poor are less likely to cooperate with their rich neighbors they may miss opportunities for their
development and social advancement, hence further perpetuating poverty and social fragmentation.
The study will provide robust empirical evidence to inform policy makers in the definition of
redistributive policies and improve social cohesion. Finding that disparities hamper cooperation would
suggest that complementarities may emerge between equality and efficiency, thus toning down the
relevance of the trade-off between the two.
1
Methodology and objectives
The project focuses on the impact of inequality on cooperation, and hinges on a novel approach based
on laboratory experiments. The main advantage of this methodology is the high control it grants over
the variables of interest, which is unimaginable in the field; the use of standardized procedures also
allows the replicability of the results.
Participant pool. About 400-500 participants sampled among high school students –more specifically, gymnasia students– will take part in the experiment. The advantages of having only students
from gymnasia are twofold. First, participants are all of the same age cohort and have attained a
comparable educational level at the time of the experiment. Second, gymnasia typically serve multiples districts and attract not just students from wealthy and well educated families, but also a
non-negligible fraction of the students from less advantaged backgrounds.8 As a consequence, gymnasia offer an interesting environment to study how people from different social classes interact with
each other.
We will study the interplay between one’s individual position along the social ladder and his
attitude towards cooperation. In particular, we will focus on dyadic relations to measure trust, trustworthiness, and generosity, which are among the fundamental ingredients for promoting and sustaining
cooperation in a society. This part tackles two main research questions. First, we will study whether
on average wealth correlates with cooperative attitudes. Second, we will test if our measures of cooperation depend on the social status of the other person involved in the dyadic relation; that is, if
there is a systematic discrimination based on the social status of the counterpart. In addition, we will
be able to control whether exposure to high degrees of inequality in everyday life exacerbates or tones
down these effects.
8
Italian data show that only 25% of the students in gymnasia are from the upper class and almost 20% are from the
working class. Source: http://www3.istat.it/dati/catalogo/20100929_01/.
2
Empirical strategy. Cooperative attitudes will be measured by means of two well established
games: (i) the Dictator Game;9 and (ii) the Trust Game.10 In the Dictator Game a Proposer has to
decide how to divide between himself and a Recipient an initial endowment given by the experimenter
– the Recipient has no choice to make. Theory predicts that the Proposer takes the entire endowment
for himself and any positive amount of money transferred is interpreted as a measure of generosity.
In the Trust Game, a Trustor receives an initial endowment and has to decide how much to send to
the Trustee. The money sent to the Trustee is tripled, and the Trustee then has to decide how much
of it to send back to the Trustor. Any positive amount transferred by the Trustor is interpreted as
a proxy for trust and any positive amount sent back by the Trustee is commonly understood as a
measure of trustworthiness. We will also collect measures of risk- and time-preferences by means of
well-established experimental designs.11
As a proxy for subjects’ wealth, we will use information on students home addresses, which will
be collected at the end of the experiment. Before running the experiment, the team will collect
administrative data about the composition of the schools and classes of interest, by district of residence
of the students. To control for the impact of the everyday exposure to inequality on the attitudes
towards cooperation we will measure the degree of wealth inequality that characterizes the class the
student belongs to, or the the area where the student comes from.
Hypotheses. Theories of inequality aversion 12 suggest that people might be more inclined to help
– i.e. to sacrifice part of their own payoff in order to increase the payoff of the other person – when
the other person is worse off, and less willing to help when the other is better off. In other words,
generosity and trustworthiness should be directly proportional to the difference between the status of
the decision maker and of the other party. By contrast, theories of belief-based reciprocity 13 would
predict that if the relatively richer anticipate the hostility of the poorer towards them, they should be
less willing to cooperate in strategic settings (trust games, gift-exchange games, public good games),
and perhaps also in non strategic settings, if beliefs on others’ intentions matter.
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Applications, ethical issues, and dissemination
Policy implications & scientific impact. Understanding the impact of inequality on the cooperativeness of a society is of paramount importance at a time when the effects of the global economic
crisis add up to the progressive increase of inequality and social fragmentation. A better knowledge of
these issues would contribute to the long-debated question of whether policy makers should stimulate
competition and efficiency, or reinforce redistributive policies and affirmative actions. The project will
contribute to the literature on cooperation and pro-social preferences, by taking into account the role
of inequality.
9
D. Kahneman, J.L. Knetsch, and R.H. Thaler. “Fairness as a constraint on profit seeking: Entitlements in the
market”. In: The American Economic Review 76.4 (1986), pp. 728–741.
10
J. Berg, J. Dickhaut, and McCabe K. “Trust, Reciprocity, and Social History”. In: Games and Economic Behavior
10.1 (1995), pp. 122–142.
11
C.C. Eckel and P.J. Grossman. “Forecasting risk attitudes: An experimental study using actual and forecast gamble
choices”. In: Journal of Economic Behavior & Organization 68.1 (2008), pp. 1–17, G.W. Harrison, M.I. Lau, and M.B.
Williams. “Estimating Individual Discount Rates in Denmark: A Field Experiment”. In: American Economic Review
92.5 (2002), pp. 1606–1617.
12
E. Fehr and K.M. Schmidt. “A Theory Of Fairness, Competition, And Cooperation”. In: The Quarterly Journal
of Economics 114.3 (1999), pp. 817–868, G. E. Bolton and A. Ockenfels. “ERC: A Theory of Equity, Reciprocity, and
Competition”. In: American Economic Review 90.1 (2000), pp. 166–193.
13
M. Rabin. “Incorporating Fairness into Game Theory and Economics”. In: American Economic Review 83.5 (1993),
pp. 1281–1302, U. Fischbacher, S. Gächter, and E. Fehr. “Are people conditionally cooperative? Evidence from a public
goods experiment”. In: Economics Letters 71.3 (2001), pp. 397–404.
3
Ethical issues. The project will involve human subjects participating as volunteers. Internationally
acceptable procedures to obtain informed consent and ensure privacy in data treatment will be used.
In case of underage participants, both parents will have to sign the informed consent; in addition,
permission from school principals and clearance from the Bioethical Committee of the University of
Bologna will be asked. Participants’ identity will be kept fully confidential. Participants will receive
a written description of the experimental procedures, and will be informed of the voluntary nature of
the task and of their right to withdraw at any time, without penalty and with a minimum payment
guaranteed. This study involves no deception of the participants about the actual rules and procedures
of the experimental study.
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Role and tasks of the research fellow.
The research fellow will take part in all the phases of the project, in collaboration with the other
members of the project and under the supervision of the tutor. The research fellow’s task will include:
• the design of the experiment and the development of the software,
• the recruitment of the students involved in the experiment,
• the data analysis,
• the dissemination of the results and the writing of the paper.
4