Other People’s Money: Preferences for Equality in Groups

Abstract

Economic policy decisions often involve a tradeoff between equality and efficiency implemented through income redistribution. We test whether people are more likely to purchase equality with their own money versus transferring someone else’s money to a low-income group member which reduces inequality at the cost of group efficiency. We synthesize (Andreoni & Miller 2002) and (Engellman & Strobel 2004) by using an experiment that allows us to measure willingness-to-pay for equality both with own income and other people’s money. Subjects are more likely to purchase equality with others' money at the cost of group efficiency. The average individual prefers an outcome with more own income and more inequality relative to our experimental status quo. The average willingness-to-pay for equality is positive when using others' money. However, our subjects are sensitive to prices even when making purchases with others' money. When the cost in terms of group efficiency is very high, subjects usually do not choose to reduce inequality. We find the same outcome when subjects decide as a dictator or with majority-rule decisions.