The Effect of Income Heterogeneity in An Experiment with Global and Local Public Goods

Public goods such as national defense or climate change mitigation affect people in multiple locations. We report on a linear public goods experiment, where subjects can contribute not only to a local public good but also to a global public good. We study the effects of endowment heterogeneity by comparing a setting where two localities have the same income (homogeneous treatment) with a setting where the localities differ in income (heterogeneous treatment). We find that: 1) social efficiency is higher in the homogeneous treatment than in the heterogeneous treatment; 2) the efficiency difference comes from two aspects: the shift from global to local public good contribution and lower total public goods provision in the heterogeneous treatment; and 3) inequality aversion and reciprocity play a role in contribution behavior in the heterogeneous treatment; however these social preferences do not fully counter the efficiency loss caused by the endowment heterogeneity. Our findings suggest that policy interventions may be necessary to increase social efficiency with heterogeneous wealth and multiple public goods.