Lobbying and Income Inequality: Experimental Evidence

Abstract

In this paper we develop a simple two-stage model of lobbying with income inequality and examine our predictions in the laboratory. We found a treatment effect contradicting the theoretical predictions: Low wage subjects paired with high wage subjects over exert in a real effort task, beyond individual rationality, producing for the group at the expense of individual welfare. Neither inequality aversion nor competitive preferences explains the off-equilibrium behaviour. In the second stage, in contrast to much of the literature, subjects tended to exert effort in the contest quite close to SPNE. Delving deeper, we found those that contributed more tax revenue in the first stage exerted more effort in the contest in the second stage, despite it being a strictly dominated strategy. Inversely, those that contributed less exerted less. The effect was observed across treatments. Over-exertion of effort displayed by the higher contributors can potentially be explained by an entitlement effect within the preferences of players, which expresses as a dislike for equal splits of pots, which were not created equally.