| Abstract: |
Accumulating research has shown that individuals’ welfare is affected not only
by the absolute amount of resources at their command but also, by their
relative position vis-a-vis others. Individuals' concerns about their relative
positions may influence individuals’ choices and affect their behavior. For
example, upward interpersonal comparisons may spur individuals to reduce
consumption gaps by increasing effort or investment to "catch-up" or by
"pulling-down" others through destructive actions. "Pulling down" other more
successful individuals may have both direct and indirect detrimental effects
on productivity and efficiency. On one hand, welfare is reduced directly as
the other’s output is destroyed and one’s resources are consumed. In addition,
the threat of destructive actions may lead to lower levels of effort and
investment. In order to empirically examine how interpersonal comparisons
affect effort levels, the prevalence of destructive actions, and how the
threat of destructive actions affect effort levels; I designed a set of
behavioral games that build on the two-stage "money burning" game. I introduce
a simple effort task in the first stage. Specifically, earnings depend on the
number of beans individuals separate from a container full of beans and rice.
The experimental games were carried out in Bolivia among 285 dairy farmers. I
find that when destructive actions are not allowed, positional concerns matter
for the bottom half of the earnings distribution. When rankings were revealed
to the participants, those below the group mean earnings increased their
effort by 7.5%. When I allow for destructive actions, 55% of people are
willing to forego higher own-consumption in order to "destroy" others’ output;
58% were victims to destructive action and lost on average 34% of their
earnings. There is an asymmetry in direction of destruction, 98.3% of the
highest earners suffered some destruction, while only 23.7% of the lowest
earners were victims to destruction actions. Finally, the threat of
destructive actions reduced highest earners’ effort by 6%. |