Skip to main content
SpringerLink
Log in

Share the Wealth: Redistribution Can Increase Economic Efficiency

  • Original Paper
  • Published:
Political Behavior Aims and scope Submit manuscript

Abstract

People frequently face uncertain income and the threat of loss can inhibit economic investments. Government redistribution can insure citizens against economic losses, but its effect on people’s investment decisions depends on how they react to redistributive rules. We apply methods from experimental economics to study how a redistributive institution affects people’s investment decisions. Experiment 1 tests whether redistribution can increase economic efficiency when people face risk problems—investment opportunities that are profitable on average but could result in a loss. In a between-subject design, participants decide whether to make a risky investment either individually or under an institution that redistributes earnings equally among four group members. We find greater investment and profits when participants are required to share their earnings. In Experiment 2, we examine free-riding by comparing an institution that allows non-investors to exploit investors to an assortment institution that matches investors with investors. We find that vulnerability to free-riding suppresses investment, whereas an assortment mechanism increases investment by preventing free-riding and thereby facilitating risk pooling.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. The data for both experiments are available at: www.pdescioli.com/data/RiskPooling.zip.

References

  • Aarøe, L., & Petersen, M. B. (2013). Hunger games fluctuations in blood glucose levels influence support for social welfare. Psychological Science, 24, 2550–2556.

    Google Scholar 

  • Aarøe, L., & Petersen, M. B. (2014). Crowding out culture: Scandinavians and Americans agree on social welfare in the face of deservingness cues. The Journal of Politics, 76, 684–697.

    Google Scholar 

  • Acemoglu, D., & Robinson, J. A. (2005). Economic origins of dictatorship and democracy. Cambridge: Cambridge University Press.

    Google Scholar 

  • Aktipis, C. A., Cronk, L., & de Aguiar, R. (2011). Risk-pooling and herd survival: An agent-based model of a Maasai gift-giving system. Human Ecology, 39, 131–140.

    Google Scholar 

  • Alford, J. R., & Hibbing, J. R. (2004). The origin of politics: An evolutionary theory of political behavior. Perspectives on Politics, 2, 707–723.

    Google Scholar 

  • Arrow, K. (1963). Uncertainty and the welfare economics of medical care. American Economic Review, 53, 941–973.

    Google Scholar 

  • Axelrod, R. (1984). The evolution of cooperation. New York: Basic Books.

    Google Scholar 

  • Bailey, R. (1991). The behavioral ecology of Efe pygmy men in the Ituri forest, Zaire. Ann Arbor, MI: University of Michigan Press.

    Google Scholar 

  • Bénabou, R. (2000). Unequal societies: Income distribution and the social contract. American Economic Review, 90, 96–129.

    Google Scholar 

  • Benartzi, S., & Thaler, R. H. (1995). Myopic loss aversion and the equity premium puzzle. The Quarterly Journal of Economics, 110, 73–92.

    Google Scholar 

  • Berinsky, A. J., Margolis, M. F., & Sances, M. W. (2014). Separating the shirkers from the workers? Making sure respondents pay attention to self-administered surveys. American Journal of Political Science, 58, 739–753.

    Google Scholar 

  • Büchner, S., Coricelli, G., & Greiner, B. (2007). Self-centered and other-regarding behavior in the solidarity game. Journal of Economic Behavior & Organization, 62, 293–303.

    Google Scholar 

  • Buhrmester, M., Kwang, T., & Gosling, S. D. (2011). Amazon’s mechanical turk: A new source of inexpensive, yet high-quality, data? Perspectives on Psychological Science, 6, 3–5.

    Google Scholar 

  • Charness, G. B., & Genicot, G. (2009). Informal risk sharing in an infinite-horizon experiment. The Economic Journal, 119, 796–825.

    Google Scholar 

  • Cosmides, L., Barrett, H. C., & Tooby, J. (2010). Adaptive specializations, social exchange, and the evolution of human intelligence. Proceedings of the National Academy of Sciences, 107, 9007–9014.

    Google Scholar 

  • Cosmides, L., & Tooby, J. (1994). Better than rational: Evolutionary psychology and the invisible hand. The American Economic Review, 84, 327–332.

    Google Scholar 

  • Cosmides, L., & Tooby, J. (1996). Are humans good intuitive statisticians after all? Rethinking some conclusions from the literature on judgment under uncertainty. Cognition, 58, 1–73.

    Google Scholar 

  • Dawes, R. M. (1980). Social dilemmas. Annual Review of Psychology, 31, 169–193.

    Google Scholar 

  • Dawes, C. T., Fowler, J. H., Johnson, T., McElreath, R., & Smirnov, O. (2007). Egalitarian motives in humans. Nature, 446, 794–796.

    Google Scholar 

  • Delton, A. W., Cosmides, L., Guemo, M., Robertson, T. E., & Tooby, J. (2012). The psychosemantics of free riding: Dissecting the architecture of a moral concept. Journal of Personality and Social Psychology, 102, 1252–1270.

    Google Scholar 

  • Delton, A. W., Nemirow, J., Robertson, T. E., Cimino, A., & Cosmides, L. (2013). Merely opting out of a public good is moralized: An error management approach to cooperation. Journal of Personality and Social Psychology, 105, 621–638.

    Google Scholar 

  • Delton, A. W., & Robertson, T. E. (2012). The social cognition of social foraging: Partner selection by underlying valuation. Evolution and Human Behavior, 33, 715–725.

    Google Scholar 

  • DeScioli, P., & Krishna, S. (2013). Giving to whom? Altruism in different types of relationships. Journal of Economic Psychology, 34, 218–228.

    Google Scholar 

  • DeScioli, P., & Kurzban, R. (2009a). The alliance hypothesis for human friendship. PLoS ONE, 4, e5802.

    Google Scholar 

  • DeScioli, P., & Kurzban, R. (2009b). Mysteries of morality. Cognition, 112, 281–299.

    Google Scholar 

  • DeScioli, P., & Kurzban, R. (2013). A solution to the mysteries of morality. Psychological Bulletin, 139, 477–496.

    Google Scholar 

  • DeScioli, P., & Wilson, B. J. (2011). The territorial foundations of human property. Evolution and Human Behavior, 32, 297–304.

    Google Scholar 

  • Dickson, E. S., Gordon, S. C., & Huber, G. A. (2015). Institutional sources of legitimate authority: An experimental investigation. American Journal of Political Science, 59(1), 109–127.

    Google Scholar 

  • Dowd, K. (2009). Moral hazard and the financial crisis. Cato Journal, 29, 141–166.

    Google Scholar 

  • Druckman, J. N., Green, D. P., Kuklinski, J. H., & Lupia, A. (2006). The growth and development of experimental research in political science. American Political Science Review, 100, 627–635.

    Google Scholar 

  • Dworkin, R. (2000). Sovereign virtue: The theory and practice of equality. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Fafchamps, M., & Lund, S. (2003). Risk-sharing networks in rural Philippines. Journal of Development Economics, 71, 261–287.

    Google Scholar 

  • Feldman, S., & Zaller, J. (1992). The political culture of ambivalence: Ideological responses to the welfare state. American Journal of Political Science, 36, 268–307.

    Google Scholar 

  • Ferguson, N. (2008). The ascent of money: A financial history of the world. New York: Penguin.

    Google Scholar 

  • Fong, C. (2001). Social preferences, self-interest, and the demand for redistribution. Journal of Public Economics, 82, 225–246.

    Google Scholar 

  • Fowler, J. H., & Schreiber, D. (2008). Biology, politics, and the emerging science of human nature. Science, 322, 912–914.

    Google Scholar 

  • Frank, R. (1988). Passions within reason: The strategic role of the emotions. New York: Norton.

    Google Scholar 

  • Gächter, S., & Thöni, C. (2005). Social learning and voluntary cooperation among like-minded people. Journal of the European Economic Association, 3, 303–314.

    Google Scholar 

  • Gerber, A. S., & Green, D. P. (2012). Field experiments: Design, analysis, and interpretation. New York: WW Norton.

    Google Scholar 

  • Gigerenzer, G., & Hoffrage, U. (1995). How to improve Bayesian reasoning without instruction: Frequency formats. Psychological Review, 102, 684.

    Google Scholar 

  • Gilens, M. (1999). Why Americans hate welfare: Race, media, and the politics of antipoverty policy. Chicago: University of Chicago Press.

    Google Scholar 

  • Goodman, J. K., Cryder, C. E., & Cheema, A. (2013). Data collection in a flat world: The strengths and weaknesses of Mechanical Turk samples. Journal of Behavioral Decision Making, 26, 213–224.

    Google Scholar 

  • Gunnthorsdottir, A., Houser, D., & McCabe, K. (2007). Disposition, history and contributions in public goods experiments. Journal of Economic Behavior & Organization, 62, 304–315.

    Google Scholar 

  • Gurven, M. (2004). To give and to give not: The behavioral ecology of human food transfers. Behavioral and Brain Sciences, 27, 543–559.

    Google Scholar 

  • Haidt, J. (2001). The emotional dog and its rational tail: A social intuitionist approach to moral judgment. Psychological Review, 108, 814–834.

    Google Scholar 

  • Haidt, J. (2012). The righteous mind. New York: Vintage Books.

    Google Scholar 

  • Hardin, G. (1968). The tragedy of the commons. Science, 162, 1243–1248.

    Google Scholar 

  • Hatemi, P. K., & McDermott, R. (2011). Evolution as a theory for political behavior. In P. K. Hatemi & R. McDermott (Eds.), Man is by nature a political animal: Evolution, biology, and politics (pp. 13–46). Chicago: University of Chicago Press.

    Google Scholar 

  • Horton, J. J., Rand, D. G., & Zeckhauser, R. J. (2011). The online laboratory: Conducting experiments in a real labor market. Experimental Economics, 14, 399–425.

    Google Scholar 

  • Huber, E., & Stephens, J. D. (2001). Development and crisis of the welfare state: Parties and policies in global markets. Chicago: University of Chicago Press.

    Google Scholar 

  • Iversen, T., & Soskice, D. (2001). An asset theory of social policy preferences. American Political Science Review, 95, 875–894.

    Google Scholar 

  • Jensen, C., & Petersen, M. B. (2016). The deservingness heuristic and the politics of health care. American Journal of Political Science, 120(6), 698–705.

    Google Scholar 

  • Kahneman, D. (2011). Thinking, fast and slow. London: Macmillan.

    Google Scholar 

  • Kam, C. D., & Nam, Y. (2008). Reaching out or pulling back: Macroeconomic conditions and public support for social welfare spending. Political Behavior, 30, 223–258.

    Google Scholar 

  • Kameda, T., Takezawa, M., Tindale, R. S., & Smith, C. M. (2002). Social sharing and risk reduction: Exploring a computational algorithm for the psychology of windfall gains. Evolution and Human Behavior, 23, 11–33.

    Google Scholar 

  • Kaplan, H., & Hill, K. (1985). Food sharing among ache foragers: Tests of explanatory hypotheses. Current Anthropology, 26, 223–246.

    Google Scholar 

  • Kaplan, H., Hill, K., Lancaster, J., & Hurtado, A. M. (2000). A theory of human life history evolution: Diet, intelligence, and longevity. Evolutionary Anthropology, 9, 156–185.

    Google Scholar 

  • Kaplan, H. S., Schniter, E., Smith, V. L., & Wilson, B. J. (2012). Risk and the evolution of human exchange. Proceedings of the Royal Society B: Biological Sciences, 279, 2930–2935.

    Google Scholar 

  • Loewen, P. J., & Dawes, C. T. (2012). The heritability of duty and voter turnout. Political Psychology, 33, 363–373.

    Google Scholar 

  • Loewen, P. J., Koop, R., Settle, J., & Fowler, J. H. (2014). A natural experiment in proposal power and electoral success. American Journal of Political Science, 58, 189–196.

    Google Scholar 

  • Lopez, A. C., & McDermott, R. (2012). Adaptation, heritability, and the emergence of evolutionary political science. Political Psychology, 33, 343–362.

    Google Scholar 

  • Mankiw, N. G. (2013). Defending the one percent. The Journal of Economic Perspectives, 27, 21–34.

    Google Scholar 

  • McDermott, R. (2002). Experimental methods in political science. Annual Review of Political Science, 5, 31–61.

    Google Scholar 

  • Meltzer, A. H., & Richard, S. F. (1981). A rational theory of the size of government. The Journal of Political Economy, 89, 914–927.

    Google Scholar 

  • Mirrlees, J. A. (1971). An exploration in the theory of optimum income taxation. The Review of Economic Studies, 38, 175–208.

    Google Scholar 

  • Moene, K. O., & Wallerstein, M. (2001). Inequality, social insurance, and redistribution. American Political Science Review, 95, 859–874.

    Google Scholar 

  • Morton, R. B., & Williams, K. C. (2010). Experimental political science and the study of causality: From nature to the lab. Cambridge: Cambridge University Press.

    Google Scholar 

  • Norton, M. I., & Ariely, D. (2011). Building a better America—One wealth quintile at a time. Perspectives on Psychological Science, 6, 9–12.

    Google Scholar 

  • Nowak, M. A., Page, K. M., & Sigmund, K. (2000). Fairness versus reason in the ultimatum game. Science, 289, 1773–1775.

    Google Scholar 

  • Okun, A. M. (1975). Equality and efficiency: The big tradeoff. Washington, DC: Brookings Institution Press.

    Google Scholar 

  • Olson, M. (1965). The logic of collective action: Public goods and the theory of groups. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Oppenheimer, D. M., Meyvis, T., & Davidenko, N. (2009). Instructional manipulation checks: Detecting satisficing to increase statistical power. Journal of Experimental Social Psychology, 45, 867–872.

    Google Scholar 

  • Ostrom, E. (1990). Governing the commons: The evolution of institutions for collective action. Cambridge, U.K.: Cambridge University Press.

    Google Scholar 

  • Ostrom, E. (1998). A behavioral approach to the rational choice theory of collective action: Presidential address, American Political Science Association, 1997. American Political Science Review, 92, 1–22.

    Google Scholar 

  • Ostrom, E. (2003). How types of goods and property rights jointly affect collective action. Journal of Theoretical Politics, 15, 239–270.

    Google Scholar 

  • Ostrom, E., Walker, J., & Gardner, R. (1992). Covenants with and without a sword: Self-governance is possible. American Political Science Review, 86, 404–417.

    Google Scholar 

  • Petersen, M. B. (2012). Social welfare as small-scale help: Evolutionary psychology and the deservingness heuristic. American Journal of Political Science, 56, 1–16.

    Google Scholar 

  • Petersen, M. B. (2015). Evolutionary political psychology: On the origin and structure of heuristics and biases in politics. Political Psychology, 36, 45–78.

    Google Scholar 

  • Petersen, M. B., Sznycer, D., Cosmides, L., & Tooby, J. (2012). Who deserves help? Evolutionary psychology, social emotions, and public opinion about welfare. Political Psychology, 33, 395–418.

    Google Scholar 

  • Petersen, M. B., Sznycer, D., Sell, A., Cosmides, L., & Tooby, J. (2013). The ancestral logic of politics upper-body strength regulates men’s assertion of self-interest over economic redistribution. Psychological Science, 24, 1098–1103.

    Google Scholar 

  • Pinker, S. (1994). The language instinct. New York: Harper Collins.

    Google Scholar 

  • Popper, K. (1959). The logic of scientific discovery. New York: Hutchinson & Co.

    Google Scholar 

  • Purves, D., & Lotto, R. B. (2003). Why we see what we do: An empirical theory of vision. Sunderland, MA: Sinauer Associates.

    Google Scholar 

  • Rawls, J. (1971). A theory of justice. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Rehm, P., Hacker, J. S., & Schlesinger, M. (2012). Insecure alliances: Risk, inequality, and support for the welfare state. American Political Science Review, 106, 386–406.

    Google Scholar 

  • Samuelson, P. A. (1963). Risk and uncertainty: A fallacy of large numbers. Scientia, 98, 108–113.

    Google Scholar 

  • Schelling, T. C. (1960). The strategy of conflict. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Seabright, P. (2004). The company of strangers: A natural history of economic life. Princeton, NJ: Princeton University Press.

    Google Scholar 

  • Selten, R., & Ockenfels, A. (1998). An experimental solidarity game. Journal of Economic Behavior & Organization, 34, 517–539.

    Google Scholar 

  • Smith, V. L. (1982). Microeconomic systems as an experimental science. The American Economic Review, 72, 923–955.

    Google Scholar 

  • Smith, V. L. (2008). Rationality in economics: Constructivist and ecological forms. Cambridge: Cambridge University Press.

    Google Scholar 

  • Stiglitz, J. E. (2012). The price of inequality: How today’s divided society endangers our future. New York: WW Norton & Company.

    Google Scholar 

  • Sugiyama, L. S. (2004a). Illness, injury, and disability among Shiwiar forager-horticulturalists: Implications of health-risk buffering for the evolution of human life history. American Journal of Physical Anthropology, 123, 371–389.

    Google Scholar 

  • Sugiyama, L. S. (2004b). Patterns of Shiwiar health insults indicate that provisioning during health crises reduces juvenile mortality. In M. Alvard (Ed.), Socioeconomic aspects of human behavioral ecology: Research in economic anthropology (Vol. 23, pp. 377–400). Greenwich Conn: Elsevier.

    Google Scholar 

  • Sugiyama, L. S., & Chacon, R. (2000). Effects of illness and injury on foraging among the Yora and Shiwiar: Pathology risk as adaptive problem. In L. Cronk, N. A. Chagnon, & W. Irons (Eds.), Human behavior and adaptation: An anthropological perspective (pp. 371–395). New York: Aldine.

    Google Scholar 

  • Tooby, J., & Cosmides, L. (1996). Friendship and the banker’s paradox: Other pathways to the evolution. Evolution of Social Behavior Pattering in Primates and Man. Proceedings of the British Academy, 88, 119–143.

    Google Scholar 

  • Trhal, N., & Radermacher, R. (2009). Bad luck versus self-inflicted neediness—An experimental investigation of gift giving in a solidarity game. Journal of Economic Psychology, 30, 517–526.

    Google Scholar 

  • Trivers, R. L. (1971). The evolution of reciprocal altruism. Quarterly Review of Biology, 46, 35–57.

    Google Scholar 

  • Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124–1131.

    Google Scholar 

  • West, S. A., Griffin, A. S., & Gardner, A. (2007). Evolutionary explanations for cooperation. Current Biology, 17, R661–R672.

    Google Scholar 

  • Wilkinson, R. G., & Pickett, K. E. (2009). Income inequality and social dysfunction. Annual Review of Sociology, 35, 493–511.

    Google Scholar 

  • Woon, J. (2012). Democratic accountability and retrospective voting: A laboratory experiment. American Journal of Political Science, 56, 913–930.

    Google Scholar 

  • Woon, J. (2014). An experimental study of electoral incentives and institutional choice. Journal of Experimental Political Science, 1, 181–200.

    Google Scholar 

  • Yamagishi, T. (1986). The provision of a sanctioning system as a public good. Journal of Personality and Social Psychology, 51, 110–116.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Political Science, Stony Brook University, Stony Brook, NY, USA

    Peter DeScioli & Andrew W. Delton

  2. Department of Psychology, University of Chicago, Chicago, IL, USA

    Alex Shaw

Authors
  1. Peter DeScioli
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Alex Shaw
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Andrew W. Delton
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Peter DeScioli.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

DeScioli, P., Shaw, A. & Delton, A.W. Share the Wealth: Redistribution Can Increase Economic Efficiency. Polit Behav 40, 279–300 (2018). https://doi.org/10.1007/s11109-017-9392-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11109-017-9392-x

Keywords

Search

Navigation