Luck or performance? The source of income changes acceptance of inequality

Does an income gap seem equally fair when it comes from a lottery and when it rewards better performance? To distinguish these situations, a team led by Ingvild Almås studied decisions made by more than 65,000 people in 60 countries. Fairness Across the World, published September 7 in the Quarterly Journal of Economics as a peer-reviewed accepted manuscript, examines how the source of inequality and the cost of reducing it influence redistribution choices.

In the experiment, participants decided on additional pay for two workers who had completed a task. One received the extra amount; the other did not. The decision-maker could preserve the gap, reduce it, or equalize the payments. Participants were randomly assigned to conditions: in one, the initial advantage came from luck; in another, from better performance on the task. A third retained the random allocation but introduced a loss of resources when money was transferred. The choices had real monetary consequences for the workers.

The global comparison showed that people left more inequality when the advantage arose from performance. In the published version's abstract, the measure of inequality resulting from these decisions was 85% higher in the merit condition than in the luck condition. Adding a 50% redistribution cost—half the amount taken away for transfer was lost along the way—increased the resulting inequality by 14% relative to the luck condition without a cost. These percentages compare the inequality produced by the choices; they are not shares of respondents or increases in countries' inequality.

Results also varied across societies. Acceptance of differences linked to performance was particularly pronounced in richer Western countries, while other views of fairness were more prevalent in other regions. The comparison helps distinguish two questions that can sound alike: how much inequality a person accepts and what reasons make it acceptable. People who tolerate a productivity-based gap may want to eliminate it when its only justification is a lottery.

In another stage of the same study, participants answered questions about the causes of inequality in their country and their attitudes toward redistribution. Preferences and beliefs were associated with both stated attitudes and cross-country differences in redistribution through taxes and transfers. This part identifies statistical relationships, without demonstrating that an individual belief produces a particular national policy. Taken together, the findings indicate why debates about income distribution need to consider justifications of fairness alongside economic costs: in the task studied, changing the source of the advantage altered decisions more than introducing a loss during transfer.