Money burning, envy and development: An experimental case study in Ethiopia

Research in social sciences has increasingly highlighted the importance of envy and related social preferences (such as fairness, reciprocity and inequality aversion) in economic activities. Satisfaction from a certain level of income will be lowered if individuals are strongly envious of richer people; for example a study on Nepal showed that relative incomes are important and found that a proportional increase in all incomes reduces subjective well-being. Negative social preferences can also arrest innovation; for example, the emergence of entrepreneurs was inhibited due to fear of retaliation resulting from envy in reforming East European countries and China.
While anthropologists/sociologists have done significant research, economic research on envy and development is almost non-existent. This proposed research attempts to contribute towards filling this gap by using experimental games, sociological surveys, focus group discussions and already collected household survey data. Newly collected data will be combined with existing panel household survey data covering the period 1994-2004. In addition to examining the degree of envy among different ethnic groups, the study will also analyse whether it has significantly affected technological innovations in rural Ethiopia. The fieldwork will be conducted in four rural villages of Ethiopia. Ethiopia is one of the poorest countries in the world with a population exceeding 70 million. The majority of people are living in rural areas and economic policy focuses on rural development. Examining if social preferences like envy - among other factors - have arrested rural development is directly relevant for policy, and yet so far studies on innovations in rural areas of Ethiopia focused on other factors (like education) totally ignoring social preferences.
The experimental games will follow the format of 'money burning' experiments where participants in the first stage are given money they can use in an uncertain investment. After receiving returns from the investment, in the second stage participants will have a chance to decrease the money of others at a cost to themselves ('burn money'). Experiments conduced in Oxford by the principal investigator of this proposal indicate that almost 50% of the participants engaged in money burning eliminating around 23% of the others' earnings. We expect investment to be lower when there is money burning; participants will invest less because they fear retaliation (others 'burning' their money). This can be tested by varying the game with and without a money burning stage. The experiments will capture both individual and cross-cultural differences between ethnic groups.
The second component of the fieldwork will be a sociological survey. Graduate students will collect data on people's cultural attitude towards envy using different ethnographic methods.
The third component will gather information on the opinion of individuals on envy and related social preferences using focus group discussions. Discussion groups representing different parts of the community will be organised.
All the above information will be combined with panel household survey data that were collected between 1994 and 2004. To link-up the new and previously gathered data, the sites for this project will be selected from the villages covered by the panel household survey. Individuals participating in the experimental games will be drawn from households covered by the survey.
As a result, we shall have both controlled experimental data and real world decisions in relation to the same subjects. Using this combined dataset, the project will examine the extent of envy in each sampled community and the corresponding differences amongst them. The effect of envy on the degree and rate of technological adoption will also be analysed.