The poor, the rich and the middle class: Experimental evidence from heterogeneous public good games

Abstract

This study sheds light on how different sources of inequality can affect cooperation in public good games. We present the results of one-shot and repeated public good experiments that seek to understand the interaction between the endowment and marginal return in heterogeneous groups. Our focus is on situations where endowments and marginal returns are either inversely or proportionally related. While two normatively appealing contribution rules are aligned in the proportional treatment, a conflict arises in the inverse treatment. In the one-shot experiment, we do not find significant differences across treatments. Contributions increase when the endowment, the marginal return or both increase. This is observed in all treatments except when endowment and marginal return are inversely related. Then the ‘middle class’ participants (those with medium endowment and marginal return) contribute more than both the high and low endowment types, mirroring real world observations of a ‘squeezed middle’. This suggests a conflict between the highly endowed subjects (but with low marginal return) and those with a high marginal return (but with low endowment). This pattern is similar when eliciting beliefs about others’ contributions - the two conflicting types expect others to contribute more than they do themselves. The novel treatments are repeated for 15 periods in a subsequent experiment to investigate potential convergence and dynamics. The results are similar to those of the one-shot interaction.