Working Paper: CEPR ID: DP17867
Authors: Mario Blázquez de Paz; Maria Bigoni; Chloé Le Coq
Abstract: It is often argued that inequality may worsen coordination failures as it exacerbates conflicts of interests, making it difficult to achieve an efficient outcome. This paper shows that this needs not to be always the case. In a context in which two populations compete over a scarce resource, we introduce ex-ante inequality, by making one population stronger than the other. This reduces the cost of miscoordination for the weakest population, and at the same time it makes some equilibria more equitable than others, thus more attractive for inequality-averse players. Hence, both social preferences and strategic risk considerations may ease coordination. We provide experimental support for this hypothesis, by considering an extended two-population Hawk-Dove game, where ex-ante inequality, number of pure-strategy equilibria, and cost of coordination vary across treatments. We find that subjects coordinate more often on the efficient outcomes in the treatment with ex-anteinequality.
Keywords: experiment; conditional cooperation; equilibrium selection
JEL Codes: C72; C91; D63; D74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ex-ante inequality (D63) | coordination outcomes (E61) |
| asymmetric treatment (C21) | coordination on efficient outcomes (P11) |
| baseline treatment (C51) | coordination on efficient outcomes (P11) |
| restricted treatment (D45) | coordination on efficient outcomes (P11) |
| restricting pure-strategy equilibria (C73) | coordination (P11) |