Spite and Development

TLDR: The authors found that spiteful preferences -the desire to reduce another's material payoff for the mere purpose of increasing one's relative payoff -are surprisingly widespread in experiments conducted in one of the least developed regions in India (Uttar Pradesh).

Abstract: In a wide variety of settings, spiteful preferences would constitute an obstacle to cooperation, trade, and thus economic development. This paper shows that spiteful preferences - the desire to reduce another's material payoff for the mere purpose of increasing one's relative payoff - are surprisingly widespread in experiments conducted in one of the least developed regions in India (Uttar Pradesh). In a one-shot trust game, the authors find that a large majority of subjects punish cooperative behavior although such punishment clearly increases inequality and decreases the payoffs of both subjects. In experiments to study coordination and to measure social preferences, the findings reveal empirical patterns suggesting that the willingness to reduce another's material payoff - either for the sake of achieving more equality or for the sake of being ahead - is stronger among individuals belonging to high castes than among those belonging to low castes. Because extreme social hierarchies are typically accompanied by a culture that stresses status-seeking, it is plausible that the observed social preference patterns are at least partly shaped by this culture. Thus, an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development.

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Year:2008
Spiteanddevelopment
Fehr,Ernst;Ho,Karla;Kshetramade,Mayuresh
DOI:https://doi.org/10.1257/aer.98.2.494
PostedattheZurichOpenRepositoryandArchive,UniversityofZurich
ZORAURL:https://doi.org/10.5167/uzh-43038
JournalArticle
Originallypublishedat:
Fehr,Ernst;Ho,Karla;Kshetramade,Mayuresh(2008).Spiteanddevelopment. AmericanEconomic
Review,98(2):494-499.
DOI:https://doi.org/10.1257/aer.98.2.494

0
Spite and Development
ERNST FEHR
Institute for Empirical Research in Economics
University of Zurich
Bluemlisalpstrasse 10
CH-8006 Zurich, Switzerland,
email:
efehr@iew.uzh.ch
KARLA HOFF
The World Bank
1818 H Street, NW
Washington, DC 20433
email:
khoff@worldbank.org
MAYURESH KSHETRAMADE
Affinnova Inc, Waltham, MA 02451
email: mayurvk@yahoo.com
American Economic Association
January 2008, New Orleans
Session Title: Psychology and Development: Theory and Experimental
Evidence
Session Chair: Sendhil Mullainathan, Harvard University
Discussant: Colin Camerer
Corresponding author: Karla Hoff phone 240-413-2758 (cell) , 202-473-
4077 (work); fax 202-522-1155.

1
Spite and Development
E
RNST FEHR, KARLA HOFF AND MAYURESH KSHETRAMADE

The disparity in the performance of economies and the
persistence of disparate economies through time have not been
satisfactorily explained by development economists. … what
has been missing is an understanding of the nature of human
coordination and cooperation (Douglas North, 1990, p. 11).
Effective institutions for contract enforcement and collective action are probably among the most
important conditions for successful economic and social development. However, in many
developing countries these institutions are weak and agreements lacking formal third party
enforcement are ubiquitous. Under these conditions, endogenous contract enforcement and the
ability of private parties to solve the cooperation and coordination problems inherent in collective
action are key. A large body of experimental evidence suggests that social preferences are vital to
solving such problems.
1
In particular, the willingness to punish cheaters in informal agreements
even at a net cost to the punisher substantially reduces cheating (E. Fehr, S. Gächter and G.
Kirchsteiger, 1997), and the willingness to altruistically punish free riders in public goods greatly
enhances the scope of private parties to solve collective action problems (E. Fehr and S. Gächter,
2002). Likewise, many people exhibit a propensity to cooperate conditional on others’

Fehr: Institute for Empirical Research in Economics, University of Zurich, Bluemlisalpstrasse 10, CH-8006 Zurich,
Switzerland (email:
efehr@iew.uzh.ch); Hoff: The World Bank (email: khoff@worldbank.org); Kshetramade:
Affinnova Inc, Waltham, MA (email: mayurvk@yahoo.com). We gratefully acknowledge support from the Research
Priority Program on the “Foundations of Human Social Behavior” at the University of Zurich (Fehr) and from the
World Bank (Hoff). We thank Sonal Vats for excellent research assistance.
1
Anderson, Christopher M. and Putterman, Louis. "Do Non-Strategic Sanctions Obey the Law of Demand? The
Demand for Punishment in the Voluntary Contribution Mechanism." Games and Economic Behavior, 2006, 54, pp.
1-24, Carpenter, Jeffrey. "The Demand for Punishment." Journal of Economic Behavior & Organization, 2007, 62,
pp. 522-42, Fehr, E. and Gächter, S. "Cooperation and Punishment in Public Goods Experiments." American
Economic Review, 2000, 90(4), pp. 980-94, Fehr, E.; Gächter, S. and Kirchsteiger, G. "Reciprocity as a Contract
Enforcement Device: Experimental Evidence." Econometrica, 1997, 65(4), pp. 833-60, Gürerk, Ozgür;
Irlenbusch, Bernd and Rockenbach, Bettina. "The Competitive Advantage of Sanctioning Institutions." Science,
2006, 312, pp. 108-11, Ostrom, E.; Walker, J. and Gardner, R. "Covenants with and without a Sword - Self-
Governance Is Possible." American Political Science Review, 1992, 86(2), pp. 404-17.
.

2
cooperation even when free-riding would maximize their material payoff (U. Fischbacher et al.,
2001).
In this paper we document, however, that social preferences may also constitute important
obstacles to development. We show, in particular, that spiteful preferences – the desire to reduce
another’s material payoff for the mere purpose of being ahead of the other – are surprisingly
widespread in experiments we conducted in one of the least developed regions in India (Uttar
Pradesh). Our results suggest that spitefulness diminishes the propensity to cooperate, even in
those situations in which mutual cooperation is an equilibrium for selfish players. Finally, we
find empirical patterns suggesting that the willingness to reduce another’s material payoff – either
for the sake of achieving more equality or for the sake of being ahead – is stronger among
individuals belonging to high castes than among those belonging to low castes.
The last finding is of particular interest because individuals’ caste status can be considered
as exogenous – individuals cannot freely select into different castes but inherit the caste status of
their parents.
2
For this reason, and because we control for demographic variables such as
education, land ownership, and house type, our finding may represent the impact of a caste
culture that put extreme emphasis on the superiority of the high castes and the inferiority of the
low castes.
3
It seems quite plausible that such a culture contributes to social preferences such as
the motive to be superior in terms of material payoff even when this comes at a cost to equality
and efficiency.
2
Also, the assignment of different social groups and individuals to the two extreme ends of the caste hierarchy
generally occurred so long ago (at least a millennium, possibly two) that any cultural differences across castes at the
extreme ends of the caste hierarchy that may have determined that assignment should have by now been erased
unless they were reinforced by the socioeconomic regime in which the caste groups have lived.
3
The Indian caste system represents an extreme form of social hierarchy. High castes traditionally could command
forced labor from low caste individuals. Low castes are those groups that have been denied basic rights and were
subject to the traditional practice of untouchability.

3
I. The Role of Spite in Cooperation and Punishment
In symmetric public goods experiments, players have the same endowments and the same
material payoff functions. Free-riders earn a higher material payoff than cooperators in this
setting. If a punishment opportunity is introduced such that individuals are first informed about
other group members’ contributions to the public good, and can subsequently target punishment
to specific individuals, many cooperators punish the free riders (Fehr and Gächter 2002). Such
punishment occurs despite the fact that the punisher has to pay for sanctioning others. However,
there is also evidence indicating that some free-riders punish the cooperators. For example, in a
symmetric one-shot public goods experiment with a punishment opportunity (Armin Falk et al.,
2005), roughly 13% of the subjects free ride and punish the cooperators. Interestingly, this
punishment occurs only if the cost for the punisher is smaller than the cost for the punished
subject, i.e., only if the free riders can increase the difference in material payoffs between
themselves and the punished subjects. If instead, every $1 invested in punishment reduces the
punished subject’s income by $1, spiteful punishment completely vanishes. This finding is
consistent with the view that free riders who punish want to increase the payoff difference
between themselves and the cooperators.
Social psychologists also have found evidence for spiteful preferences (Paul A. M. van
Lange, 1999). Van lange examined the social preferences of more than 2000 subjects in the
Netherlands with the ring test (W. B. G. Liebrand and C. G. Mcclintock, 1988) and found that
roughly 12-13% of them are willing to pay for increasing inequality. These subjects prefer, for
example, the allocation (480 for self, 80 for other) relative to the allocation (540 for self, 280 for
other), thus sacrificing total surplus and equality for the sake of a larger payoff difference
between “self” and “other.”

Frequently asked questions

Q1. What are the future works in "Spite and development" ?

Thus, an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development. 

Q2. What are the important conditions for successful economic and social development?

Effective institutions for contract enforcement and collective action are probably among the most important conditions for successful economic and social development. 

Q3. What is the evidence for dictator games?

Evidence in dictator games suggests that high-caste subjects (compared to low-caste subjects) are considerably more likely to reduce others’ payoffs if behind or to take other spiteful actions. 

Q4. What is the effect of punishment on cheating?

In particular, the willingness to punish cheaters in informal agreements even at a net cost to the punisher substantially reduces cheating (E. Fehr, S. Gächter and G. Kirchsteiger, 1997), and the willingness to altruistically punish free riders in public goods greatly enhances the scope of private parties to solve collective action problems (E. Fehr and S. Gächter, 2002). 

Q5. What is the effect of the experiment on the LL pairs?

In the second half of the experiment, in which players change partners, coordination on the good equilibrium increases in all treatments, and LL pairs achieve the Pareto-dominant outcome in 80% of the cases (12/15). 

Q6. What is the effect of spiteful punishment on the willingness of a disinterested party?

A spiteful individual is also more likely to violate contracts – either by providing low effort or low quality or by a lower willingness to pay the bill – because such contract violations increase the shirker’s payoff at the expense of the trading partner. 

Q7. How many times did the LL pairs achieve the good equilibrium?

In round 5,, the LL pairs obtain the good equilibrium in 67 percent of the cases (10/15), whereas the HH pairs obtain it in only 19 percentof the cases (3/16). 

Q8. Why did they match all high caste players with low caste players?

Hoff and Pandey matched all high caste players with high caste players, and all low caste players with low caste players because they were interested in how the dictators behave in HH and LL pairs. 

Q9. How many people in the game 3 are low caste?

Based on the results of the previous section, the null hypothesis for games 2-4 is that high castes are more spiteful or more willing to pay to reduce disadvantageous inequality; therefore the authors added one-sided p-values for these games. 

Q10. Why do the authors believe that high caste subjects are less capable of coordinating?

The authors believe that this lower ability to cooperate may be due to the high caste subjects’ concern for status and superiority and their strong aversion against disadvantageous inequality. 

Q11. What is the purpose of this study?

The authors conducted a sequential, one-shot, exchange game with third party punishment in Uttar Pradesh in order to study the potential impact of an extreme social hierarchy on the willingness of a disinterested party to punish violations of informal agreements. 

Q12. Why is a spiteful individual harder to motivate to cooperate?

A spiteful individual is harder to motivate to cooperate because he has a higher marginal cost of contributing to public goods or joint activities: 

Q13. What is the effect of the design?

This design can address the question whether high caste members are more or less able than low caste members to coordinate on the good equilibrium and whether mixed pairings do worse.