Social Choice and Welfare

, Volume 46, Issue 2, pp 263–286 | Cite as

Heterogeneity, inequity aversion, and group performance

Original Paper

Abstract

We investigate the effects of inequality in wealth on the incentives to contribute to a group output when agents are inequity averse and may differ in ability. We show that equality may lead to a reduction of contributions 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.

JEL Classification

D03 H41 D31 D63 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.University of CologneKölnGermany
  2. 2.IZABonnGermany
  3. 3.CESifoMünchenGermany

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