Do people have a taste for equality? Teaching cost-benefit analysis with a sprinkle of experimental economics

Apparently they do. In a recent article published in Nature (see the first paragraph)
Dawes et al (2007) found that in experimental settings:

Subjects reduce and augment others’ incomes, at a personal cost, even when there is no cooperative behaviour to be reinforced. Furthermore, the size and frequency of income alterations are strongly influenced by inequality. Emotions towards top earners become increasingly negative as inequality increases, and those who express these emotions spend more to reduce above-average earners’ incomes and to increase below-average earners’ incomes. The results suggest that egalitarian motives affect income-altering behaviours, and may therefore be an important factor underlying the evolution of strong reciprocity and, hence, cooperation in humans.

If you don’t have access to the article, you can read the excellent report by Inga Kiderra Economics Experiment Finds Taste for Equality. Here is the first paragraph:

According to a new study of behavioral economics, published in the April 12, 2007 issue of Nature, people will spend their own money to make the rich less rich and the poor less poor. They do so without any hope of personal gain, acting, it seems, out of a taste for equality and sense of fair play.

When teaching Cost-benefit analysis this spring, I presented to my students the main arguments for treating low- and high-income groups differently in CBA following the excellent presentation by Boardman et al. 2006 in Cost-Benefit Analysis – Concepts and Practice, 492 – 495. In addition to the “one person, one vote” principle and the standard argument of diminishing marginal utility of income, Boardman et al. (2006, 492) present the general argument that “income distribution should be more equal”. They write:

The second argument for giving dollars received or paid by the poor greater weight is CBA [cost-benefit analysis] than dollars received and paid by the rich is premised on the assertion that the current income distribution is less equal than it should be and social welfare would be higher if it were more equal“.

Dawes et al (2007) recent paper on Nature offers one possible base for argument that “income distribution should be more equal” and can be used as a reading to show students the importance of experimental economics for cost-benefit analysis.

References

Dawes, Christopher T. Fowler, James H. , Johnson, Tim, McElreath, Richard & Smirnov, Oleg (2007) Egalitarian motives in humans, Nature Volume 446 Number 7137, 794-796

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