Inequality and Effort: An Experiment on Competition Between Teams

At least since Adam Smith, economists have recognized the beneficial effects of competition in markets. The possible positive influence of competition between teams on the free rider problem within teams is a more recent discovery. It is important because the free rider problem exists to some degree in most teams and because many outcomes in economic and social life depend on competition between teams. However, teams are rarely endowed equally and we do not know much about how such inequality affects the influence of competition on free riding. We address this question with an experiment. It is important not only because of the connections sketched above, but also because this is an overlooked aspect of how inequality impacts on society. We find that there is less free riding within teams when there is competition, that this is robust to moderate degrees of inequality but disappears when inequality is high.