The Political Roots of Inequality and Inefficiency: An Evolutionary Model Under Political Institutions

This paper considers an evolutionary model in which a majority group and an alternative group interact in the context of a political institution that determines the allocation of two positions (high and low) in the social hierarchy. The allocation of positions determines the material payoffs of the individuals and the fitness levels of the two groups. The fitness levels in turn determine the evolution trajectory. We find that under unadulterated majoritarianism, because of the exclusive de jure political power of the majority, any strategy type can be locally evolutionarily stable. When the agents with the low positions are as if trying to maximize their own material payoffs, the corresponding strategy types are evolutionarily stable. On the other hand, under egalitarianism in which the de jure political powers of the two groups are proportional to the groups’ sizes, we find that the locally evolutionarily stable strategy types have the following two properties: the agents with the high positions are as if trying to maximize the total material payoffs of all agents, while agents with the low positions are as if trying to minimize the total material payoffs of all agents. The rationale is that the political incentives of the two groups are determined by the marginal benefits of getting more high positions of the two groups. Therefore, the group whose members act as if they “fit” the high position better has stronger de facto political power. These results are robust when evolution operates either on the strategy level or on the preference level with incomplete information. We apply the results to applications in which the high position agents determine redistribution and the low position agents determine production. We find that both political institutions can lead to inefficient levels of effort exerted by the low position agents, while only egalitarianism lead to a high transfer from the high position agents to the low position agents. Hence, we provide a novel perspective to understand the trend of decreasing work effort in the modern democratic welfare states with increasingly progressive fiscal policies.