Almost all developed economies combine a market economy with a welfare state. Two essential roles of the welfare state are to handle inequalities created in markets and to provide insurance for market risks faced by individuals. The sustainability of the welfare state depends critically on its ability to fulfill these roles and to handle the potential trade-off between fairness and efficiency. The research project aims to provide new knowledge about how people perceive fairness in a market setting and what is seen as legitimate ways to respond to inequalities and risks in a market economy. The project consists of a series of subprojects and below we highlight some key projects
1. In a large lab experiment, we examine the extent to which people accept inequalities that arise in "winner takes all" situations. We find that people to a large extent are willing to accept that the winner gets it all as long as the winner is determined based on merit and that the inequality acceptance does not the depend on the winning margin. The results are recently replicated on a large general population sample.
2. In an experiment with more than 2000 participants who each make real distributive choice for two other individuals, we have studied how the willingness to accept inequality depends on the gender of the winner and the loser. We find that that the willingness to accept an inequality reflecting differences in performance, is much higher when the winner is a woman and the man is a loser, than in the reverse situation. We are also able to study the mechanisms behind this difference.
3. In an experiment conducted with a representative sample in the US (1000 participants) who make distributive decisions for different groups of workers, we have studied the role of collaboration as a source of distributive obligations within and between groups. We find that the collaboration is an important source of distributive obligations within groups, but not between groups.
4. In a large field experiment in Chicago, in which children have been randomized in to different educational programs, we are able to study how early childhood education causally affects perceptions of fairness. We find that attending pre-school makes children more egalitarian in their fairness views.
5. In the project "Choice and personal responsibility", we study how attitudes to redistribution are affected by whether or not people have had a choice, even if the Choice is nominal or forced. We find that even nominal and forces choices increase the willingness to accept inequality. The results are recently replicated with a large sample of respondents (+5000) from the general population.
6. To better understand international differences in attitudes to social insurance and redistribution, we have conducted an experiment in Norway and the US, in which 2000 participants made real distributive choices for 2000 pairs of workers. The main result is that there are systematic differences between Norway and the US, even when the participants make distributive decisions in identical situations. The Americans are substantially more libertarian Norwegians and the Norwegians are substantially more egalitarian. We also find that the source of inequality is much more important than the cost of redistribution in determining the willingness to accept inequality.
7. In the project "social risk preferences: theory and experimental evidence", we employ a new experimental technique to examine how attitudes to redistribution (people's social risk preferences) is related their fairness preferences and their risk preferences. We find that attitudes to redistribution in complex situations with social risk can be predicted on the basis of risk preferences and by preferences for equality in deterministic situations.
8. In the project "second-best fairness", we study how people make trade-offs between two types of mistakes when they make distributive choices in a setting in which it is difficult to distinguish between deserving and undeserving individuals. We find that people are much more concerned with avoiding false negatives, i.e. not giving to those who are deserving, than with false positives, i.e. giving to those who are undeserving.
9. In the project "Fairness and Uncertainty" we study, using a large economic lab experiment, how uncertainty about the source of inequality affect what is seen as a fair income distribution. We find that people do not update their beliefs about the source of inequality in line with standard economic theory.
10. I the project "Beliefs about the behavioral responses to taxation" we collect incentivized measures of what the general population (+10.000 participants) in the US believe about the behavioral responses to taxation and we the relationship between these believes and attitudes to redistribution in society. The main result is that there no systematic differences in beliefs between Republicans and Democrats.
Almost all developed economies combine a market economy with a welfare state. Two essential roles of the welfare state are to handle inequalities created in markets and to provide insurance for market risks faced by individuals. The sustainability of the welfare state depends critically on its ability to fulfill these roles and to handle the potential trade-off between fairness and efficiency. The research project aims to provide new knowledge about how people perceive fairness in a market setting and what is seen as legitimate ways for the welfare state to respond to inequalities and risks in a market economy.
The first part of the research project uses economic experiments and survey studies to examine how the perceived fairness of income inequalities generated in markets depends on the source of these inequalities. In two subprojects we address issues related to the role of competition in justifying income inequalities, including gender inequalities in income, as well as people's views on fair prices in a setting with imperfect competition. In this part we also examine what people view as fair executive compensation.
In the second part of the research project we aim to study when it is seen as legitimate to compensate unlucky risk takers. In particular we will examine the extent to which attitudes to social insurance take account of what alternatives people are facing when they make risky decisions. To better understand international differences in attitudes to social insurance, we also plan to conduct a survey study in selected European countries and in the US.
In the third part of this research project we aim to use a novel experimental technique to examine how people make the trade-off between fairness and efficiency and whether this trade-off primarily is determined by fairness preferences or by risk preference. In this part we also aim to contribute to the literature on how market interactions might crowd out moral motivation.