Solidarity among the poor

Solidarity among the poor

Economics Letters 123 (2014) 144–148 Contents lists available at ScienceDirect Economics Letters journal homepage: www.elsevier.com/locate/ecolet S...

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Economics Letters 123 (2014) 144–148

Contents lists available at ScienceDirect

Economics Letters journal homepage: www.elsevier.com/locate/ecolet

Solidarity among the poor Angela C.M. de Oliveira a,∗ , Catherine C. Eckel b , Rachel T.A. Croson c a

University of Massachusetts Amherst, Department of Resource Economics, 203 Stockbridge Hall, 80 Campus Center Way, Amherst, MA 01003, USA

b

Texas A&M University, Department of Economics, 4228 TAMU, College Station, TX 77843, USA

c

University of Texas, Arlington, Dean, College of Business, 701 S. West Street, Room 334, Box 19377, Arlington, TX 76019, USA

highlights • • • •

We design and implement a visual version of the solidarity game for use in low-literacy populations. We find significant evidence of conditional gifts (informal risk sharing) in a low income population. Less than 7% of participants do not make any conditional gifts. These individuals are more risk tolerant than other participants. We find substantially more ‘fixed gift’ behavior than previous studies, over 40% of the participants.

article

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Article history: Received 20 August 2013 Received in revised form 15 January 2014 Accepted 24 January 2014 Available online 7 February 2014 JEL classification: C93 D81

abstract We conduct a field experiment with low-income subjects in Dallas, Texas. We examine voluntary, informal risk sharing using a visual representation of the solidarity game developed for low-literacy populations. We find substantially more ‘fixed gift to loser’ behavior and less ‘egotistical’ behavior than in previous studies. Individuals who display ‘egotistical’ behavior are more risk tolerant. The amount of the conditional gifts is positively related to age, income, and connection to the community. However, trust and empathy, which are commonly discussed as drivers for solidarity, are not significantly related to the amount given. © 2014 Elsevier B.V. All rights reserved.

Keywords: Solidarity Field experiment Informal risk sharing Social preferences Poverty

1. Introduction Solidarity, a driving force behind risk sharing, is a type of indirect reciprocity; taking care of others who have ended up in a bad financial situation, purely by chance. Informal risk sharing arrangements are most often observed among individuals living at or below the poverty line, and provide an important financial alternative for those with few market-based options for borrowing

Abbreviations: SO98, Selten and Ockenfels, 1998. Corresponding author. Tel.: +1 413 545 5716. E-mail addresses: [email protected], [email protected] (A.C.M. de Oliveira), [email protected] (C.C. Eckel), [email protected] (R.T.A. Croson).



http://dx.doi.org/10.1016/j.econlet.2014.01.025 0165-1765/© 2014 Elsevier B.V. All rights reserved.

or insurance. However, very little is understood about the behavioral propensity to risk-pool, nor about the potential behavioral responses that might result. On the one hand, risk pooling provides a safety net for individuals most susceptible to shocks. On the other hand, it reduces incentives to self-insure against losses. Previous research on solidarity, or risk pooling more generally, has focused on establishing the phenomenon and understanding underlying motivations for self-selecting into risk-pooling groups (Barr and Genicot, 2008; Büchner et al., 2007; Charness and Genicot, 2009; Selten and Ockenfels, 1998), cultural differences (Brosig-Koch et al., 2011; de Beer and Berg, 2012a,b; Ockenfels and Weimann, 1999), the role of social networks in risk-pooling decisions (Attanasio et al., 2012; Fafchamps and Lund, 2003); luck, deservingness and wealth differences (Chaudhuri et al., 2005; Trhal and Radermacher, 2009). However, these studies have primarily focused on

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Fig. 1. Solidarity game instruction page.

either student samples (e.g., Charness and Genicot, 2009) or lessdeveloped countries (e.g., Attanasio et al., 2012).1 We contribute to the literature by developing and implementing a variation of the Solidarity game (Selten and Ockenfels 1998, hereafter SO98) with a simple, visual representation, and examining behavior in a lowincome urban neighborhood in the US. In the solidarity game, participants are placed in random and anonymous groups of three. Each has an independent 2/3 chance of receiving $75 and 1/3 chance of receiving nothing. Before outcomes are known, subjects decide how much of their earnings to send, conditional on winning, to those who lose. We find evidence of substantial informal risk sharing when the opportunity is available. While we identify the same types of giving behavior observed in previous studies, we find a different distribution of types, with substantially more ‘fixed gift to loser’ behavior: over 40% of individuals make decisions that guarantee a set minimum payoff to their group members, even though the groups are anonymous. We further find that ‘egotistical’ individuals, those who do not make conditional gifts, are more risk tolerant. Conditional gifts are positively related to income and connection to the community. 2. Experimental design and field implementation We adapt the SO98 design for a low-income population by introducing a visual representation and by increasing the stakes, so that subjects can win $75 with 2/3 probability and $0 with 1/3 probability. Fig. 1 shows the graphic representation. Each of the three players has a bag with two winning chips, marked W , and one losing chip, marked L. To determine payment, person pulls a chip out of the bag, and that chip determines whether they win or lose. Before pulling a chip, each subject has to make two decisions. The decision form is shown in Fig. 2. The form shows two situations: When the subject and one other person win (top panel) and when the subject was the only winner (bottom panel). They were instructed to write down the amount they wanted to put in their wallet and the amount they wanted to send to the loser(s) in each situation.2 Experiments were conducted as part of a larger field study examining neighborhood quality and neighborhood change.3 Subjects were chosen randomly from 496 individuals who completed

1 Notable exceptions are de Beer and Berg (2012a,b) who use an urban environment (Amsterdam), but one that is more financially affluent. For brevity we provide illustrative examples, not an exhaustive review of the literature. 2 Note that while we did not force individuals to send the same amount to each of two losers, 183 out of 199 who completed the game chose to send an identical conditional gift to each. Full instructions are available from the authors. Note that SO98 conduct a double-blind study whereas ours is not. All subjects complete their booklets using a code number, but the number is not randomly assigned. 3 More details are available at http://www.utdallas.edu/~murdoch/NeighborhoodChange/index_nc.html.

Fig. 2. Solidarity game decision form.

the detailed household survey where one participant per household was recruited from a random selection of tax parcels in the neighborhood (Leonard et al., 2011). A total of 201 subjects participated in the experimental sessions in October 2009, November 2009, and February 2010 and ranged in size from two to nineteen subjects, with a mean of 10.4 Subjects could participate in only one session. All sessions were run at a centrally-located field station maintained for this study, and transportation was provided when necessary. The same lead experimenter ran all sessions, with trained assistants drawn from both the community and from Center for Behavioral and Experimental Economic Science at the University of Texas at Dallas. Subjects arrived, gave informed consent, and were paid a $20 show-up fee. Subjects participated in a series of experiments to elicit preferences for individual risk, correlated risk, skewness, and time preferences as well as the dictator, trust, and solidarity games. Solidarity game results are this study’s focus. We additionally use the average gift from a comparative dictator game (DG) in the analysis. Subjects made four DG decisions with other anonymous strangers from their community. They received some limited information about recipients, possibly (but not necessarily) including gender, marital status, number of children, employment status and disability status. Experimental tasks were followed by a survey. Further, some subjects completed additional surveys as part of the larger study, which were conducted on different dates/times. The experimental games were always run in the same order, with no feedback between tasks.5 One game was chosen at random for payment for all subjects in a session. Average earnings were $50.16 (min = $0, max = $170), plus the $20 show-up fee. 3. Aggregate gifts and strategies We begin with a discussion of aggregate results for the baseline solidarity game, Appendix A details all of the conditional gifts.

4 Session size is never statistically significant in our analysis (either independently or in interaction with the key variables) and so it is omitted. 5 This design choice means that we cannot explicitly test for order effects, nor can we rule out the influence of order on the contribution levels chosen. Paying one activity, with no feedback between activities, should help minimize these effects: Subject only receives feedback for the task for which they will be paid.

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Table 1 Summary of total conditional gifts and strategies, by treatment. Data, stakes

Mean gift % of endowment

South Dallas $75 SO98a —West DM 10 OW99b —East DM 10 a b

1 loser

2 losers

24.91 24.60 16.20

37.28 31.20 20.20

1-loser premium

2.67 3.15 3.21

Conditional gift classification, % of respondents Egotistical

Fixed sacrifice

Fixed gift

Intermediate

6.53 21 47

21.11 36 N/A

42.21 16 N/A

15.35 11 N/A

Selten and Ockenfels (1998). Ockenfels and Weimann (1999).

Table 2 Level of voluntary risk-sharing, tobit. Observables

Preferences

1 loser

2 losers

1 loser

2 losers

−0.771

−6.239*

−0.835

−6.359*

Mean DG

(1.97) 0.141 (0.07) 0.813 (0.56) –

(2.84) 0.230* (0.11) 1.733* (0.80) –

Empathy





Risk tolerance





Identify





Know Name





GSS trust



(1.79) 0.116 (0.07) 0.650 (0.52) 0.312*** (0.07) 0.233 (0.18) −0.609 (0.62) 1.987 (1.73) 3.889** (1.25) 0.219 (0.35) −1.910 (5.90)

(2.66) 0.215* (0.11) 1.619* (0.77) 0.407*** (0.10) 0.306 (0.27) −1.568 (0.91) 2.364 (2.57) 4.144* (1.85) −0.391 (0.52) 5.448 (8.71)

Female Age, years Income

Constant LNL χ 2, (Prob > χ 2 )

– ***

12.076 (3.66)

19.259*** (5.27)

−658.87

−711.68

−639.57

−696.65

6.46 (0.00)

16.38 (0.00)

45.05 (0.00)

46.44 (0.00)

Tobit with 16 observations censored at zero for one loser and 18 censored at zero for two losers. N = 178 due to missing observations on some of the survey measures, standard errors in parentheses. The dependent variable is the amount of the conditional gift. * p ≤ 0.05. ** p ≤ 0.01. *** p ≤ 0.001.

Table 1 shows the mean total conditional gift for one and two losers as a percentage of the endowment, as well as the ‘1-loser premium’, defined below. The average per-person gift is $18.68 for one loser (who would receive gifts from two winners) and the total conditional gift for two losers is $27.96, or $13.98 each. Examining decision rules more closely, only 13 subjects (6.5%) contribute zero in the case of both one and two losers, termed ‘egotistical’ by SO98, which is substantially smaller than found in SO98 (21%) or Ockenfels and Weimann (1999, 47%–48%). By and large, subjects make positive conditional gifts. Two patterns appear to be focal: In the first, termed ‘exact fixed total sacrifice’ (fixed sacrifice hereafter) by SO98, the decision maker offers the same total amount to losers, whether there are one or two. One can think of this decision rule as being similar to a tithe: a set amount, based on the endowment and the decision makers’ preferences, is given regardless of the need. We find that 21.1% of individuals make positive contributions consistent with this decision rule, compared with their 36%.6

6 This figure does not include their category, fixed total sacrifice ‘up to rounding’, where subjects essentially make a fixed sacrifice, except that they round to the nearest integer. We do not have any amounts that are not integers. Including those subjects brings their percentage of subjects exhibiting fixed sacrifice behavior to 52%.

The second pattern corresponds to the case where the decision maker wants each of the losers to get the same amount, termed ‘fixed gift to loser’ (fixed gift hereafter). If there is one loser, the decision maker contributes $X, and if there are two losers, the decision maker contributes $2X. We find that 42.2% of decisions are consistent with this pattern compared with 16% in SO98. Note that 34 subjects exhibit a desire to achieve an egalitarian outcome, sending $25 to one loser and $50 (or $25 each) to two losers. If the decision maker believes that the second winner will contribute $25 to the loser if they win, then this pattern of conditional gifts would result in payoffs of $50 each if there are two winners and $25 each if there is one winner. A useful aggregate measure of giving behavior is the ‘1-loser premium’, proposed by SO98. It summarizes how much more a loser receives if there is only one loser in the group compared to when there are two losers.7 We find that one loser can expect 2.67 times more than when there are two losers, compared with 3.15 in SO98. This suggests that, in the aggregate, the decision rule in our population is closer to the fixed gift than fixed sacrifice: a fixed sacrifice decision rule would produce a factor of 4, and a fixed gift a factor of 2. The prevalence of fixed gift as opposed to fixed sacrifice behavior is particularly interesting in this population: SO98 show that fixed sacrifice behavior is inconsistent with altruistic utility maximization and argue that it reflects a self-serving norm whereas fixed gift is an other-regarding behavior.8 4. Individual choices A number of factors may influence the decision to voluntarily make a conditional gift. In introducing the game, SO98 suggest possible underlying mechanisms: ‘‘Solidarity means a willingness to help people in need who are similar to oneself but victims of outside influences such as unforeseen illness, natural catastrophes, etc’’. (p. 518). This definition proposes that to identifying with the potential losers, and either altruistic tendencies or being empathetic towards the needy are likely to influence gifts. Further, though gifts are not reciprocated in this environment, if the game is measuring some aspect of the subjects’ informal risk-sharing network, then indirect reciprocity and trust as well as individual risk tolerance are likely to impact the choices made as well. Table 2 shows the correlates of conditional gifts. The dependent variable is the amount of the conditional gift, in dollars. The first pair of columns includes some of the observable characteristics often considered in charitable giving studies: Gender, Age, and Income. We find mixed evidence for gender: women give less when there are two losers, but there is no difference for only one loser. This is somewhat in line with previous studies: Büchner et al. (2007) find no significant differences by gender in the solidarity game whereas Charness and Genicot (2009) find that women transfer less in their risk-sharing game and Brosig-Koch et al. (2011) find a marginally negative impact on contributions. However, SO98 find women less likely to be egotistical.

7 The 1-loser premium is calculated as follows: (mean gift to one loser × 2)/(mean gift to two losers/2). 8 We would like to thank Axel Ockenfels for highlighting this point.

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We further find older individuals transferring larger amounts. Individuals with higher incomes also make higher conditional gifts. Our income measure is a lumpy indicator from 0 to 8. Zero indicates an annual household income of less than $10 K, 8 indicates an annual household income of between $80 and $90 K. Higher numbers step up into the next $10 K range.9 Our estimates indicate that individuals with higher incomes make larger conditional gifts, but only significantly for the case of two losers. The second pair of columns includes preference and motivation variables that have been discussed in the literature. First, we see that the mean dictator gift is positively and significantly related to gifts in the solidarity game. Our empathy measure is from the Davis (1980) Interpersonal Reactivity index. Like Büchner et al. (2007), we do not see a significant relationship between the empathy scale and the conditional gifts. Risk Tolerance is the Eckel–Grossman risk measure (Eckel and Grossman, 2008).10 We find no significant effect of risk tolerance on the amount an individual is willing to contribute. However, we do find (not shown) that risk significantly correlates with strategy choice, and in the manner expected (similar to Charness and Genicot): Individuals who are more risk tolerant are more likely to make choices consistent with the egotistical decision rule, and less likely to make choices consistent with any of the other rules.11 Based on the definition of solidarity put forth in SO98, the ability to identify with the needy might play a role in the gift decision. We therefore include two measures of identity and relatedness. ‘Identify’ is a dummy variable equal to one if the subject indicates that they strongly agree that they see themselves as a member of their neighborhood. ‘Know Name’ is the number of individuals in the experimental session that the subject reports they know by name (mean 0.38, max 4, within the estimation sample). While self-reported identification with the community is not significantly related to gift behavior, knowing the name(s) of others in the session is—even though all decisions are anonymous, groups are randomly matched, and the likelihood of being matched with someone you know is small. Finally, trust, measured using the typical General Social Survey trust question, is not related to conditional gift behavior.12 Knowing the name of individuals in one’s session could cause participants to feel closer to those in the session or it could cause individuals to feel more closely related to their community. If the latter is true, we might expect to see a correlation between ‘know name’ and ‘identify’. However, this is not supported by the data (corr = 0.01, p = 0.98). We could also think of splitting the data by those who do and do not know at least one person in the session, shown in Table 3. An interesting pattern develops: Among those who know no one in the room, individuals who identify strongly with the community make significantly higher conditional gifts. This is not the case for individuals who know the name of at least one individual, where the effect is negative and insignificant. For individuals who know at least one person in the session, the number of people whose name is known is related to the gift to one loser but not the gift to two losers. Taken together, this result is consistent with a type of substitution between identities: General neighborhood

9 For the estimation sample, the household median is in the $10–$20 K range and the household mean is 1.20 (std. dev. 1.72), or in the $20–$30 K range. 10 Risk takes a value of one if the subject is not willing to take on any risk, two through four indicate decreasing levels of risk aversion, five indicates expectedvalue maximization, and six indicates risk seeking behavior. 11 Note that none of the other demographic or preference variables are

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Table 3 Level of voluntary risk-sharing by ‘Know Name’, tobit. Know > 0 (N = 52)

Know 0 (N = 128) 1 loser Identify Know Name LNL

2 losers *

*

5.363 (2.15) –

6.372 (3.23) –

−445.35

−492.43

1 loser

2 losers

−4.586

−5.983

(2.93) 5.624** (2.03) −187.10

(4.27) 4.254 (2.96) −206.36

Tobit, standard errors in parentheses. The dependent variable is the amount of the conditional gift. The analysis includes all of the variables in Table 2, with estimates suppressed. * p ≤ 0.05. ** p ≤ 0.01.

identity is a significant factor in the decision process until those who are closer in terms of social distance are involved. Then, the identity associated with that group may dominate in this decision environment. 5. Closing discussion We develop and implement a visual representation of the SO98 solidarity game for use in low-income/low-literacy populations. On the whole, the evidence indicates substantial levels of voluntary, informal risk sharing in this population. The magnitudes of the conditional gifts are particularly striking given the low incomes and apparent need in this population: 32.3% of subjects indicated that the money they earned would be used to pay bills and 39.3% indicated the funds would go towards necessities (food, gas, medicine). Contrary to previous studies, the most common decision rule observed in our population is fixed gift rather than fixed sacrifice: this is particularly interesting since SO98 suggests that fixed gift is a more altruistic behavior. However, we do not find universal support for the role of previously hypothesized underlying motivations impacting the choice of conditional gifts. While individuals who are more risk tolerant are more likely to make egotistical decisions, it does not impact the amount of the conditional gift. We find mixed evidence that women make lower conditional gifts and that older subjects make higher conditional gifts. Connection to the community is associated with higher gifts. Understanding the behavioral foundations of this behavior, as well as the role of community, provides an interesting avenue for future research. Acknowledgments The authors completed the work for this manuscript while at the University of Texas at Dallas in addition to their present affiliations. A number of people assisted at various stages of this research. We would especially like to thank Natalia Candelo Londoño, Elizabeth Pickett, Lance Mattingly, Tammy Leonard, and other researchers associated with the Neighborhood Change Research Initiative at the UT Dallas. Axel Ockenfels, Lata Gangadharan, Alexander Smith, and Christine Binzel provided helpful comments on previous versions of this manuscript. Funding provided by the National Science Foundation, HSD award # 0827350. Appendix A See Table A.1.

significantly related to strategy choice except that women are less likely to display intermediate behavior. 12 We additionally tested trust, as measured by a trust game. The amount sent

Appendix B. Supplementary data

in the trust game is not significantly related to behavior and reciprocity is only robustly related to behavior when the second player is sent nothing (which is essentially a dictator game). Results are available from the authors upon request.

Supplementary material related to this article can be found online at http://dx.doi.org/10.1016/j.econlet.2014.01.025.

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Table A.1 Conditional gift tables.

Notes: The x1 column indicates the conditional gift for one loser, and x2 indicates the conditional gift for two losers. The numbers in the cells are subject counts for that (x1 , 2x2 ) pair. Light gray shading indicates fixed sacrifice, dark gray shading indicates fixed gift, and diagonal shading indicates intermediate behavior. Contingency table tests confirm that the gifts are not independent, p < 0.00.

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