Inequality, Trust, and Growth: An Experimental Study

In a three player dynamic public goods experiment, social output today determines production possibilities tomorrow. In each period, players choose to sabotage, to co-operate, or to play best response. Sabotage harms social output and growth. Mutual co-operation maximises both. The property rights to social output are distributed unequally. Extent and skew of inequality are varied. Empirical studies indicate a negative impact of inequality on trust and growth. We observe equilibrium play in most cases. There is also substantial cooperation, but little sabotage. Our exogenous variations of inequality are neutral to growth, neither negatively correlated to co-operation, nor positively correlated to sabotage.