The Incentive Effects of Inequality: An Experimental Investigation |
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Authors: | Hyejin Ku Timothy C Salmon |
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Institution: | 1. Florida State University, Department of Economics, 113 Collegiate Loop, Room 263, P.O. Box 3062180, Tallahassee, FL 32306-2180, USA;2. Southern Methodist University, Department of Economics, 3300 Dyer Street, Suite 301, Umphrey Lee Center, Dallas, TX 75275-0496, USA |
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Abstract: | The effect of inequality on economic growth and efficiency is often debated. Our study investigates a behavioral phenomenon through which inequality might have adverse effects on economic growth. In particular we investigate whether or not individuals exhibit a discouragement effect in the face of inequality that leads to lower work effort. If such an effect exists, it provides a mechanism for converting even idiosyncratic inequality into sustained inequality with adverse consequences for the individuals being affected by the inequality and the economy as a whole. We investigate this phenomenon using an economic experiment to allow us to cleanly vary the nature of inequality and to allow us to directly observe several characteristics of the workers. We find robust support for the existence of a discouragement effect lending credibility to the claims that such an effect would exist in external situations among workers confronted with disadvantageous inequality. |
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Keywords: | C90 D61 D63 O15 O40 |
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