Self-serving dictators and economic growth

Abstract

We study the effect of fair institutions on growth. In our model, individuals are endowed with unequal entitlements to the economy's output. They can free-ride or cooperate. Cooperation is individually costly, but increases aggregate output and growth. Experimentally, we observe significantly less cooperation, when dictators chose high instead of low inequality. This effect is not observed when the degree of inequality is chosen randomly. Simple cross-country regressions provide basic macroeconomic support for interaction effects between the degree and the genesis of inequality. We conclude that economies granting equal opportunities are less likely to suffer retarded growth due to free-riding than economies with self-serving dictators.