The Limits of Equality: Insights from the Israeli Kibbutz

What limits the capacity of society to redistribute and provide insurance? What determines the structure of compensation in organizations striving for income equality? This paper addresses these questions by investigating the economic and sociological forces underlying the persistence of the Israeli kibbutzim, communities based on the principle of income equality. To do this, I exploit newly-assembled data on kibbutzim, and a financial crisis in the late-1980s that affected them differentially. The main findings are that: (1) productive individuals are the most likely to exit, and a kibbutz’s wealth serves as a lock-in device that increases the value of staying; (2) higher wealth reduces exit and supports a high degree of income equality; (3) ideology contributes to income equality. Using a simple model, I show that these findings are consistent with a view of the kibbutz as providing optimal insurance without commitment to stay, namely when participation is at-will. More generally, these findings contribute to an understanding of how mobility limits redistribution, and to an understanding of the determinants of the sharing rule in other types of organizations, such as professional partnerships, cooperatives and labor-managed firms.