Inequality, Inequity Aversion, and the Provision of Public Goods

Felix Kölle, Dirk Sliwka and Nannan Zhou ()
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Nannan Zhou: University of Cologne

No 5514, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We investigate the effects of inequality in wealth on the incentives to contribute to a public good when agents are inequity averse and may differ in ability. We show that equality may lead to a reduction of public good provision below levels generated by purely selfish agents. But introducing inequality motivates more productive agents to exert higher efforts and help the group to coordinate on equilibria with less free-riding. As a result, less able agents may benefit from initially disadvantageous inequality. Moreover, the more inequity averse the agents, the more inequality should be imposed even by an egalitarian social planner.

Keywords: public goods; inequality; inequity aversion; social welfare; voluntary provision; income distribution; heterogeneity (search for similar items in EconPapers)
JEL-codes: D31 D63 H41 J31 M52 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2011-02
New Economics Papers: this item is included in nep-cbe, nep-pbe and nep-pub
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Citations: View citations in EconPapers (13)

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