Equity Theory and the Voluntary Provision of Public Goods when Income is not Distributed Equally

Kenneth S. Chan

Rob Godby

Staurt Mestelman

R. Andrew Muller

McMaster University, Hamilton, Ontario, Canada L8S 4M4

Journal of Economic Behaviour and Organization, Vol. 32, 1997, pp. 349-364.

Abstract

A model incorporating aspects of a psychological theory of equity is presented as an alternative to the conventional economics model. Equity theory suggests that people may feel distress if they contribute either larger or smaller shares of their incomes to a public good than the average contribution of others, and that people will behave in a way to avoid this distress. The Nash equilibrium prediction for this model is for high income individuals to undercontribute and for low income individuals to overcontribute relative to the prediction of the conventional model. The data support the alternative model over the conventional model.