Growth and Inequality in Public Good Games

In a novel experimental design we study public good games with dynamic interdependencies. More precisely, each agent’s income at the end of a period serves as her endowment in the following period. In this setting growth and inequality arise endogenously allowing us to address new questions regarding their interplay and effect on cooperation levels. In stark contrast to standard public good experiments, we find that contributions are increasing over time even in the absence of punishment possibilities. In both treatments (with and w/o punishment) inequality and group income are positively correlated for poor groups (below median income), but negatively correlated for rich groups. There is very strong path dependence: inequality in early periods is strongly negatively correlated with group income in later periods. These results give new insights into why people cooperate and should make us rethink previous results from the literature on repeated public good games regarding the decay of cooperation in the absence of punishment. ∗We thank Ingvild Almas, Martin Dufwenberg, Tore Ellingsen, Drew Fudenberg, Santiago Oliveros and MarieClaire Villeval as well as participants in seminars and conferences at Essex, Maastricht, Lund (GIRLS 2014) and Toulouse (EEA ESEM 2014) for helpful comments. Friederike Mengel thanks the European Union (grant PERG08GA-2010-277026) for financial support. Simon Gaechter gratefully acknowledges support from the European Research Council grant ERC-AdG 295707 COOPERATION and the ESRC network on integrated behavioural sciences (NIBS). †School of Economics, University of Nottingham, University Park Campus, Nottingham NG7 2RD, United Kingdom. ‡Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, United Kingdom, e-mail: [email protected] §Department of Economics (AE1), Maastricht University, PO Box 616, 6200 MD Maastricht, The Netherlands ¶Department of Economics (AE1), Maastricht University, PO Box 616, 6200 MD Maastricht, The Netherlands ‖Department of Economics (AE1), Maastricht University, PO Box 616, 6200 MD Maastricht, The Netherlands