Academic journal article Economic Inquiry

A Clear and Present Minority: Heterogeneity in the Source of Endowments and the Provision of Public Goods

Academic journal article Economic Inquiry

A Clear and Present Minority: Heterogeneity in the Source of Endowments and the Provision of Public Goods

Article excerpt

I. INTRODUCTION

There is extensive evidence that heterogeneous populations invest less in social capital. For example, Alesina and Ferrara (2000) find that participation in social activities is lower in racially and ethnically diverse areas. This in turn may result in lower levels of public goods provision (Alesina, Baqir, and Easterly 1999) and lower per student educational spending (Poterba 1997). Moreover, heterogeneity (racial or otherwise) may increase the number of social categories and thereby reduce the extent to which individuals identify with one another. As discussed by Akerlof and Kranton (2000, 2005), the lack of identification with one another may result in individuals engaging in less cooperation and displaying greater self-interest (Eckel and Grossman 2005; Van Vugt and De Cremer 1999). On the level of policy implementation, Luttmer (2001) suggests that these group differences reduce individuals' incentives to support redistribution. This research suggests that heterogeneity matters in reducing the effects of social preferences and the incentives to invest in social capital.

But what exactly is the source of this heterogeneity? On the one hand, Alesina, Glaeser, and Sacerdote (2001) and Lee and Roemer (2004) propose that the source of this heterogeneity is racial: The presence of a clearly identifiable racial minority reduces individuals' incentives to engage in redistribution. Moreover, Alesina and Ferrara (2000) and Knack and Keefer (1997) find that social capital is lowest in those U.S. states and countries characterized by greater racially heterogeneous populations (in which the group of interest is a racial minority). On the other hand, we propose that one source of this heterogeneity is the difference in individuals' efforts and hence the source of (and perceived property rights over) their resources. While this second dimension of heterogeneity may be strongly correlated with racial diversity, it has strikingly different policy implications. It is this latter form of heterogeneity which emphasizes the importance of understanding and providing proper incentives to individuals. For example, Oxoby (2004) suggests that individuals living in poverty may adhere to different sets of norms which are related to the subculture of the poor or the underclass. These norms may include withdrawal from the labor market or welfare dependency. These differences in norms provide an opportunity to reduce this heterogeneity which may be correlated with racial lines but can be addressed through policies such as welfare reform and work-fare programs which alter the extent to which these individuals are viewed as minorities in terms of their deservingness to public goods. Indeed, if unemployment is a dimension which defines heterogeneity in terms of legitimacy to assets and access to public goods, the Phelps (2000) argument for employment subsidies may not only serve his intended purpose of reducing social exclusion, but also serve to reduce the type of heterogeneity we identify as a cause of reductions in the contribution to public goods. Thus, this form of heterogeneity (i.e., differences in the legitimacy one has to one's assets or differences in individuals' perceived deservingness to benefitting from public goods) emphasizes basic policies such as reducing unemployment as a means of increasing contributions to the public good.

Heterogeneity in the source of individuals' resources and the presence of a minority among individuals with differing sources of endowments is the focus of this paper. Specifically, we conduct public goods games in which groups of participants differ with respect to the source of their endowments: some individuals within the group earned their endowments while others had their endowments allocated by the experimenter. This type of heterogeneity, albeit on a small scale, mirrors the type of heterogeneity described above, and may underlie the way individuals invest in social capital and assess their support for redistribution. …

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