1. When Foul Play Seems Fair: Meritocratic (Un)Fairness and (Dis)Honesty Fabio Galeotti (University of East Anglia) Reuben Kline (Stony Brook University) Raimondello Orsini (University of Bologna) Lorentz Center, NorMAS Workshop 2013

2. Belief in a Just World and Redistribution Belief in a Just World (BJW) is the belief that deserving people are rewarded and undeserving people are punished. Under BJW, salient injustice causes a type of cognitive dissonance which one resolves through rationalization or action. BJW (partly) explains cross-national (US vs. West Europe) variation in degrees of re-distribution: those who are more likely to believe that income is a result of luck and connections are more likely to support redistribution (Alesina & Angeletos, 2005). Early adolescents begin to develop a sense of fair inequality; younger children tend to be strict egalitarians (Almas et al., 2010)

3. Inequality, Inequity and Dishonesty Inequality in many cases is often confounded by inequity (unfairness). Inequality can in principle be fair or unfair. Under BJW, unfairness might trigger a redistributive reaction. Our argument is that if the income distribution is considered to be unfair, citizens are more likely to view circumvention of the rules of the game – that is dishonesty and corruption - as justified. Meritocratic fairness honesty Meritocratic unfairness dishonesty

4. Related Literature In Hoffman et al. (1994), subjects earn right (quiz performance) to be proposer in ultimatum game. Zizzo (2003) Inequality and procedural fairness in a money burning and stealing experiment. Almas et al. (2010) modified dictator game in which endowment is earned through an effort task Rustrom & Williams (2000), investigate preferences for redistribution after earning money in a Tower of Hanoi task (meant to differentiate effort and productivity) Konow et al. (1996, 2000, 2005 etc) origin of endowment and PGG contribution, accountability principle Ruffle (1997): exogenous (coin flip) vs. endogenous (skill-testing contest) endowments in dictator and ultimatum games

5. Experimental Details Experimental sessions: –University of Bologna, Forlí Campus (June, 2011 and February 2013): 164 subjects –Stony Brook University, NY (April and November, 2012): 144 subjects Average payments: about 11.50 at Forlí and about $17 at SBU Computerized experiment (z-Tree) Duration: 30-40 minutes

6. Experimental Design Equity (Fairness) Equality EEEI UEUI Three stages: –Stage 1: Real-effort task to measure performance/effort and assign initial endowments –Stage 2: Dishonesty stage (in pairs) –Stage 3: Real-effort task as in Stage 1 Between-subjects manipulation of initial endowments allocation and pairing:

7. Stage 1: Real-effort task Real-effort task: counting the occurrences of letters e and c in each line of a text in German A tedious task intended to elicit a sense of property rights over performance

8. Stage 1: effort and payoff Subjects were instructed that: –At the end of the task, they will be divided into two groups, high performers and low performers, based on median performance; –their performance on the quiz will determine their initial endowment: 3 out of 4 scenarios: Endowment (high performer) Endowment (low performer) 1 out of 4 scenarios: Endowment (low performer) Endowment (high performer)

9. Treatment EE: Equal & Equitable Equal: Both high and low performers get the same payment Equitable: In the following stage, subjects will be paired high- high and low-low (randomly) Thus, the income distribution is both equal and equitable because all subjects are compensated equally and performed the same Control for income effects: two sub-treatments: –EE high: High performers receive $10 (7) and low performers receive $10 (7) –EE low: High performers receive $3 (2) and low performers receive $3 (2)

10. Treatment EI: Equal & Inequitable Equal: Both high and low performers get the same payment Inequitable: In the following stage, subjects are paired high- low (randomly) Thus, the income distribution, while equal, is arguably inequitable because the high performers receive compensation equivalent to the low performers, despite they know that their performance was higher Control for income effects: two sub-treatments: –EI high: high performers receive $10(7) and low performers receive $10(7) –EI low: high performers receive $3(2) and low performers receive $3(2)

11. Treatment UI: Unequal & Inequitable High performers receive $3 (2) and low performers receive $10 (7) Subjects are paired high-low (randomly) Thus, the income distribution is both unequal and inequitable

12. Treatment UE: Unequal & Equitable High performers receive $10 (7) and low performers receive $3 (2) Subjects are paired high-low (randomly) Thus, the income distribution, while unequal, is arguably equitable because the high performers receive greater compensation for their performance

13. Stage 2: Dishonesty stage Additional payment. Within each pair: Participant A: –Owner of escrow account of $15 (10) Participant B: –Custodian of the account TreatmentOwnerCustodian EEHigh (Low) performer EILow performerHigh performer UELow performerHigh performer UILow performerHigh performer

14. Stage 2: Private Signals and Misrepresentation The custodian receives a series of 25 binary signals The signals are generated from a (symmetric) binomial distribution Each signal is either red or green, but known only privately to each custodian Each signal is meant to direct the custodian as to whether to transfer an amount, $0.60 (0.40) to herself (green) or leave it for the owner of the account (red) It is the recording of the signal that affects payoffs, not the signal itself - therefore the custodian can potentially misrepresent the signal Practice rounds with forced input to learn the rules

15. Dishonesty task

16. Behavioural hypotheses 1)Procedural unfairness induces more dishonesty: UI > UE 2) Stronger effect in USA than in Italy, since American subjects should be more sensitive to meritocracy (WVS) Dishonesty in US: UI EI > EE UE Dishonesty in Italy: UI > EI EE UE

17. Results: rate of honesty (No difference between EE high (EI high) and EE low (EI low) we pool the data) In aggregate, American subjects were more honest than Italian (Mann- Whitney p = 0.026) mainly driven by EE and UE treatments

18. Two Types of Misrepresentation negative dishonesty: reporting a signal as green when it is in fact red positive dishonesty: reporting a signal as red when it is in fact green as expected, we find much more negative dishonesty than positive dishonesty

19. Results: negative dishonesty In aggregate, no difference between Italy and US

20. Results: positive dishonesty In aggregate, US > Italy (p = 0.027)

21. Results: custodians earnings Italy: no difference across treatments

22. Random Effects Logit (Italy and US) ITALYUS bpbp Red signal(t)5.112****04.321****0 Red Signal (t-1)-0.2710.167-0.416**0.016 Red Signal (t-1)+(t-2)-0.0090.9710.1420.481 Red Signal×UI-1.575***0.009-1.082**0.016 Red Signal×UE-0.4150.5471.417**0.027 Red Signal×EI-0.6150.239-1.188***0.004 UI0.2910.715-0.8460.215 UE-0.3980.635-1.287*0.061 EI0.1640.8-0.7410.213 Effort-0.1060.743-0.2070.428 Period-0.0060.635-0.0090.396 Constant-3.059**0.011-0.7530.471 Obs16561886 Dependent variable: public signal (1 = red, 0 = green)

23. To sum up We observe statistically significant differences between the Italian and the American sample In the US, dishonesty is triggered mainly by perceived inequity/unfairness In Italy dishonesty is higher on average, but is almost unrelated to equity/fairness

24. Meritocracy and honesty: Survey Evidence Data used from the World Values Survey across three waves Dependent variable(s): on a scale of 1-10, how justifiable is: –cheating on ones taxes if you have the chance –accepting a bribe in the course of your duties Chief explanatory variable is, on scale of 1-10: –1: In the long run, hard work usually brings a better life. –10: Hard work does not generally bring success – it is more a matter of luck and connections.

25. Multi-level model: results Greater degrees of (perceived) inequity and inequality (at the national level) are associated with a greater willingness to circumvent micro-level rules (accept bribes, cheat on taxes), even when controlling for income and corruption at the national level This observational study shows that these factors are associated with one another Our experimental results show that in the lab (and especially in the US) the inequity of the income distribution is associated with a greater degree of dishonesty, even when holding constant the inequality of the distribution.

26. Random Effects Logit (All) Dependent variable: public signal (1 = red, 0 = green) bp Red signal(t)4.330****0 Red Signal (t-1)-0.339***0.009 Red Signal (t-1)+(t-2)0.0680.657 Red Signal×UI-1.223****0.001 Red Signal×UE0.660.149 Red Signal×EI-0.932***0.004 Red Signal×Italy0.723***0.007 Italy-1.361****0 UI-0.3530.489 UE-0.99*0.061 EI-0.2510.56 Effort-0.1170.559 Period-0.0070.364 Constant-1.3540.086 Obs3542

27. Thanks for your attention