Preferences for Redistribution and Pensions. What can we Learn from Experiments?

Abstract

Redistribution is an inevitable feature of collective pension schemes. Nevertheless, it is still an open question what people’s preferences are regarding this form of redistribution. This paper reviews experimental evidence on preferences regarding redistribution and asks what this evidence tells us about preferences for redistribution through pension schemes. We distinguish between three fundamentally different types of situations. The first deals with distributional preferences behind a veil of ignorance. What type of income distribution do people prefer when they do not know whether they will end up in an advantaged or disadvantaged position? The evidence shows that, contrary to John Rawls' suggestion, people do not prefer the maximin rule, but rather favor a utilitarian justice concept appended with a safety net for the poorest. Furthermore, people are willing to accept income inequalities when they are due to choices for which people can be held responsible. In the second type of situation, individuals make choices in front of the veil of ignorance and know their position. Here the evidence shows that preferences for redistribution are strongly dependent on a person’s own position. Disadvantaged people want more redistribution than those who are relatively advantaged, indicating that preferences for redistribution are biased by self-interest. Still, even many of those in an advantaged position display a preference for redistribution. Finally, we discuss situations in which income is determined by interdependent rather than individual choices. Here experiments show that behavioral factors such as trust and reciprocity play a crucial role, and that these factors are strongly affected by the institutional setting. In the closing parts of the paper we discuss whether and how these experimental results speak to the redistribution issues of pensions.redistribution, fairness, pension, insurance, experiment