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讨论稿No. E2011004 : Too Costly to Correct:An Experimental Study of the Willingness to Pay for Equal Abilities

发布日期:2011-09-03 09:57    来源:北京大学国家发展研究院

Too Costly to Correct: 
An Experimental Study of the Willingness to Pay for Equal Abilities


Hao Hong  Jianfeng Ding  Yang Yao

No. E2011004    September 13, 2011

Abstract

When governments allocate resources to people, people have different levels of abilities to use those resources to generate income. We conduct an experiment of the divinity game to study a hypothetic social planner’s willingness to pay to correct unequal distribution of abilities. The social planner is asked to distribute money from a fixed budget to two other subjects who have different abilities to convert the transfers into their own income. Twenty rounds are conducted that allow the social planner’s budget and the gap of abilities between the two other subjects to vary between rounds. We test the data for consistency and recover the social planner’s underlying preference for social distribution. The social planner’s willingness to pay for equal abilities is measured by the equivalent variation (EV), i.e., the amount of social surplus he would like to forgo to avoid a larger gap of abilities. Both parametric and nonparametric estimations show that the willingness to pay for eliminating the same amount of inequality of abilities declines when the initial inequality starts larger. This result contributes to the experimental literature on the tradeoff between equality and efficiency and sheds lights on the explanation of persistent inequality in some societies.

Keywords: the equality-efficiency tradeoff; willingness to pay; the divinity game

JEL classification: D63, D78
No. E2011004