Bitter divisions: inequality, identity and cooperation

Abstract: Overriding inequality Group identity, beliefs and cooperation in asymmetric social dilemmas Heterogeneity reduces cooperation. Understanding why can help mitigate the problem. As salient interpersonal differences reduce expectations of favourable behaviours on behalf of others, emphasising common identities should increase cooperation. Focusing on inequality and public good provision, I experimentally study i) the salience of inequality in the formation of beliefs about others’ cooperativeness, ii) how such beliefs drive behaviour and iii) whether emphasising group identity reduces the salience of inequality, and what impact it has on both beliefs and cooperation. I find that inequality affects the formation of beliefs about others’ cooperativeness: the rich are always expected to cooperate more. Beliefs thus formed determine cooperation levels, with expectations about the rich emerging as the strongest drivers. I find that while group identity affects neither aggregate beliefs nor aggregate cooperation under limited information on group performance, it exerts a positive effect on poor subjects. Keywords: Cooperation, public goods, inequality, belief formation, experiment JEL classification: A13, C91, C92, D03, H41 Cooperation in Divided Societies We experimentally investigate how contributions to public goods are affected by multiple group membership and endowment heterogeneity. We find no differences in contributions to public goods in societies with equal and unequal endowments. However, in unequal societies we observe the rich contributing greater proportions of their endowments in income-homogeneous than in income-heterogeneous groups, and increasing over time. This is consistent with endowment size-driven social identification. Keywords: Conditional cooperation, experiment, public goods, social class, multiple groups. JEL classification: C91, H41. The coordinating power of transfers We investigate whether past behavior towards a third party can positively influence people’s ability to coordinate in the future. We study a Battle of Sexes game preceded by i) no transfer, ii) a mandatory transfer to a third party, or iii) a voluntary transfer to a third-party. The results show significantly higher coordination rates in the pre-play transfer conditions compared to coordination rates with no transfer. However, conditional on choosing to voluntarily transfer, coordination rates increase most. We conclude that past behaviour positively affects coordination rates, and show that the success of voluntary transfers depends on the proportion of subjects choosing to transfer. Keywords: Battle of the sexes, coordination, experiment, institutions, third-party, transfer JEL classification: C72, C79, D03