Fairness Matters for Efficiency

http://economistsview.typepad.com/economistsview/2012/04/fairness-matters-for-efficiency.html


The Triumph of the Social Animal, by Chrystia Freeland, Reuters:

 Does fairness matter? .... Economics ... hasn’t traditionally been much concerned with fairness. ... The alternate view was advanced by Armin Falk, a Bonn University economist, at a recent economics conference in Berlin organized by the Institute for New Economic Thinking. It emphasizes the importance of fairness and trust to human behavior. This approach takes as its starting point the idea that we are social animals, driven powerfully by how we fit into our community.

The social animal school may sound touchy-feely, but one of its favorite research tools is the M.R.I. ... In one experiment, subjects were paid 50 percent more, the same amount or 50 percent less than a peer for doing the same amount of work. Crucially, the absolute payment the research subject received in each case was identical

But brain scans showed that fairness had a strong impact at a neurological level. Anyone who has ever held a job or has a sibling won’t be surprised to learn that the most powerful response was evoked when the research subject was underpaid, compared with his identically tasked peer. Interestingly, when researchers simulated low social status..., unfair treatment mattered less. The meek may inherit the earth, but in the meantime they have been conditioned to accept less than their fair share.

In another experiment, Dr. Falk and Ernst Fehr, of the University of Zurich, investigated [the question]: Does our perception of fairness influence how hard we work? Their answer is yes — workers who are underpaid don’t work as hard. ...