The experiment being conducted analyses the impact of income heterogeneity through a public goods game. Income heterogeneity, which is the discrepancy between income amounts was introduced by providing participants with unequal token endowments. There were 80 secondary school children, with an average age of 18 years, who were recruited from Khayelitsha in the Western Cape. The experiment took place in a library in Khayelitsha. Participants were recruited through a non-governmental organisation which provides extra tuition in Mathematics, English and Science to the scholars.
There were 20 groups in total divided into four people per group. Ten groups were granted equal treatment and the other ten groups were granted unequal treatment. In the equal treatment, each participant received 40 tokens to divide between the public account and the private account in each round of the game. In the unequal treatment, two of the four participants in the group received 30 tokens and the other two participants received 50 tokens to use in each round. Each token was worth 10c, however it was not mentioned in the paper how much the amount contributed to the public account was multiplied by and then distributed between the participants.
On average, the participants earned R128 in the experiment, of which included R20 for their participation.
The rules of the game were explained to the students thoroughly but the actual identity of the high and low endowment participants in the unequal treatment was not publicly revealed in the groups. Two practice rounds took place before the start of the first round in order to ensure that participants understood the game well.
The experiment was repeated in 10 rounds to ensure a sufficient range for accurate data collection.
Based on previous research this experiment predicted that the following three models might be evident. The first is the Model of Altruism, which predicts that individuals will contribute their entire endowment to the public account as this would maximise their social income. Therefore high-income participants contribute more than low-income participants because they have a larger endowment. The second is the Model of Inequality Aversion, which predicts that the high-income participants will contribute a larger fraction of their endowment amount to the public account than the low-income participants as this would reduce inequality within the group. The final is the Model of Reciprocity, which predicts that high- and low-income participants will contribute the same fraction of their endowment to the public account. Even though the amounts will be different the proportion will be the same and this will ensure fairness within the group.
The results from this experiment showed that high and low endowment participants contribute the same fraction of their endowment to the public account. These results therefore show that the Model of Reciprocity was most supported by the data collected as opposed to the other two models. On average, the high endowment participants contributed 6.4 tokens more than the low endowment participants, however this was still the same as the fraction contributed by the low endowment participants. Even though these results are consistent with the Model of Altruism, where both parties care for each other, the Model of Reciprocity was a more plausible explanation. The results were not consisted with the Inequality Aversion Model because, once again, the fraction remained constant. Therefore, as a result of the Model of Reciprocity being supported, the participants each received a fair social income.
These results also showed that on average, the participants in the equal treatment groups contributed 25% of their total tokens into the public account. In the unequal treatment groups, on average the low endowment players contributed 21% and the high endowment players contributed 29% of their total tokens into the public account. Although we can see that the low endowment players contributed slightly more than their fair share and high endowment players contributed slightly less than their fair share, these differences are not significant.
In the equal treatment groups, the average contribution in round one of the game was 33%, and while there was some variation in contributions over the other rounds, the average contribution in the final round of the game was again 33%. In contrast, in the unequal treatment groups, the average contributions in round one was 46%, and dropped to 42% in the final round of the game. This, however, differs from other public good games research studies because it shows an insignificant decrease in the average contributions to the public good account over the rounds. This may have been because of the small sample size and because these participants knew one another well which implies cooperation.
We found this experiment very interesting because from the results you are able to conclude that income heterogeneity does not have any significant impact on contributions to the public good account, and that it is consistent with the Model of Reciprocity where low and high endowment participants contribute the same fraction of their endowment to the public account. Therefore, showing that people do not see the need to contribute less to a public account, which is most beneficial to society, even though they are disadvantaged with a lower income.
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