The Dynamic Interplay of Inequality and Trust - An Experimental Study

Ben Greiner, Axel Ockenfels and Peter Werner

No 08-026, Harvard Business School Working Papers from Harvard Business School

Abstract: We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal start positions increase subjects' inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.

Keywords: inequality; trust; growth; laboratory experiments (search for similar items in EconPapers)
JEL-codes: C73 C92 D63 E25 O15 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2007-10
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-gth and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The dynamic interplay of inequality and trust—An experimental study (2012)
Working Paper: The Dynamic Interplay of Inequality and Trust – An Experimental Study (2007)
Working Paper: The Dynamic Interplay of Inequality and Trust - An Experimental Study (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:08-026

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