Catching Up or Pulling Down? Interpersonal Comparisons and Destructive Actions: Experimental Evidence from Bolivia

• Development Workshop

Date and Location

Monday, October 12, 2015, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Interpersonal comparisons with those who are relatively better off can spur individuals to increase effort or investment to "catch-up" or to "pull-down" others through harmful actions. While destructive behavior directly reduces welfare, it can also indirectly reduce output and welfare if perceived threats induce ex-ante behavioral responses such as lower levels of effort and investment. In order to empirically examine how interpersonal comparisons, along with the prevalence of destructive actions, influence effort levels, this paper presents the results from a unique experimental design that builds on the two-stage "money burning" game. The experimental games were conducted in Bolivia among 285 dairy farmers. Results show that when participants were presented with their ranking and the earnings of others in their group, those below the group mean increased their effort whereas those above the group mean decreased their effort. When destructive actions were allowed, 55 percent of the participants were willing to forego own-consumption in order to burn others' output; 58 percent were victims of destructive actions and lost, on average, a third of their earnings. There is an asymmetry in the direction of destruction: almost all of the highest earners suffered some destruction while only a quarter of the lowest earners were victims of destructive actions. Finally, the threat of destructive actions reduced the highest earning participants' effort by 5.8 percent.