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Does equity induce inefficiency? An experiment on coordination

Mamadou Gueye (), Nicolas Querou and Raphael Soubeyran ()
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Mamadou Gueye: CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier

CEE-M Working Papers from CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro

Abstract: In this paper, we use a laboratory experiment to analyze the relationship between equity and coordination success in a game with Pareto ranked equilibria. Equity is decreased by increasing the coordination payoffs of some subjects while the coordination payoffs of others remain unchanged. Theoretically, in this setting, difference aversion may lead to a positive relationship between equity and coordination success, while social welfare motivations may lead to a negative relationship. Using a within-subject experimental design, we find that less equity unambiguously leads to a higher level of coordination success. Moreover, this result holds even for subjects whose payoffs remain unchanged. Our results suggest that social welfare motivations drives the negative relationship between equity and coordination success found in this experiment. Moreover, our data suggest that the order of treatment matters. Groups facing first the treatment with high inequality in coordination payoffs, then the treatment with low inequality in coordination payoffs, reach the Pareto dominant equilibrium more often in both treatments compared to groups playing first the treatment with low inequality in coordination payoffs, then the treatment with high inequality in coordination payoffs.

Keywords: effciency; social welfare motivation; equity; coordination game; difference aversion (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth and nep-upt
Date: 2018-12-07
Note: View the original document on HAL open archive server: https://hal.umontpellier.fr/hal-01947414
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Working Paper: Does equity induce inefficiency? An experiment on coordination (2018)
Working Paper: Does equity induce inefficiency? An experiment on coordination (2018)
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