Skewness-Adjusted Social Preferences as a Transmission Channel between Inequality and Growth: Experimental Evidence on Elite-Behavior

Abstract

In this paper, we introduce a skewness-adjusted social-preferences functional, which models social preferences as a function of the skewness of the human capital distribution. We hypothesize that the “elite” of the society becomes more selfish with increasing skewness of the human-capital distribution. Hence, the members of the “elite” reduce their human-capital investments, thereby disregarding positive spillover effects. As a consequence, macroeconomic growth diminishes. The results of an experimental test clearly confirm that the model is able to correctly explain and predict the observed pattern of behavior.

Keywords: Inequality, Growth, Social Preferences, Human Capital, Experiments

JEL Classification: C91, O1, D9