Meritocratic Matching Can Dissolve the Efficiency-Equality Tradeoff: the Case of Voluntary Contributions Games

Nax, Balietti, Murphy, Helbing (submitted -- 2015)

Abstract

One of the fundamental tradeoffs underlying society is that between efficiency and equality. The challenge for institutional design is to strike the right balance between these two goals. Game-theoretic models of public-goods provision under "meritocratic matching" succinctly capture this tradeoff: under zero meritocracy (society is randomly formed), theory predicts maximal inefficiency but perfect equality; higher levels of meritocracy (society matches contributors with contributors) are predicted to improve efficiency but come at the cost of growing inequality. We conduct an experiment to test this tradeoff behaviorally and make the astonishing finding that, notwithstanding theoretical predictions, higher levels of meritocracy increase both efficiency and equality, that is, meritocratic matching dissolves the tradeoff. Fairness considerations can explain the departures from theoretical predictions including the behavioral phenomena that lead to dissolution of the efficiency-equality tradeoff.

Draft Manuscript

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Experimantal Instructions

Full texts available here.

Quiz

Full texts available here.

Graphical Interface

Screenshots available here.

Summary of Results

  1. Efficiency increases with meritocracy. Perfect meritocracy is near-efficient and coincides with the theoretically predicted levels. The zero meritocracy regime lies above the efficiency levels implied by the theoretical equilibrium assuming self-regarding rational choice. For intermediate meritocracy levels, efficiency is above that of zero meritocracy, but below the theoretically expected equilibrium values.
  2. Equality, in contrast to theoretical predictions, increases with meritocracy. This finding is robust with regard to several inequality measures, including the payoff of the worst-off subject. In our settings, the often-cited tradeoff between equality and efficiency turns out to be a theoretical construct, rather than a behavioral regularity.
  3. Fairness considerations can explain the dissolution of the tradeoff between efficiency and equality. According to our definition: agent A considers the outcome of the game "unfair" if another agent B contributed less than A , but B was placed in a better group. Consequently, agent A will respond by decreasing his/her contribution.
  4. Higher meritocracy levels increase agents' sensitivity to unfair group matching in lower meritocracy levels. Our experimental setup expose each participant to two distinct levels of meritocracy. When the second part of the experiment is restarted at a lower meritocratic regime, it turns out that agents' distaste for unfair group matching is magnified.

Code of the Experiment

Experiment was run using nodeGame 0.9.x. Code available here.