Speaker: Aidas Masiliunas (University of Sheffield)

Title: Asymmetry facilitates wealth creation in a dynamic investment game

When: Friday, June 21, 10:30am - 12:00pm

Where: Oskar-Morgenstern-Platz 1, 1090 Wien, Lecture hall 17, 2nd floor (map)

Abstract:

We address the question of whether inequality impedes economic growth using economic experiments. Our novel dynamic game combines elements of a public goods game and a rent-seeking contest and participants are both cooperating to grow the future resources and competing to obtain a higher share of these resources. We study the consequences of two types of asymmetries, either in resources or in abilities (modeled via contest effort cost). The two types of asymmetries are manipulated in a 2x2 factorial design, allowing us to separate the effects of asymmetry from pure wealth inequality. We find that either type of asymmetry significantly improves the investments in economic growth, compared to the symmetric baseline. We replicate these results in experiments with both a growing economy (no depreciation of the prize value) and a shrinking economy (50% depreciation in each round). We contribute to the existing experimental literature by showing that the negative effect of endowment asymmetry, found in public goods games, is reversed when the rewards from investments are all ocated endogenously.