Why does ethnic diversity undermine public good provision? In a recent study Habyarima et al. (2007) distinguish three mechanisms that may be at work:
- First, group-specific preferences for different public goods (leading to disagreement) or for the utility of in-group versus out-group members;
- Second, a technology mechanism determining ‘efficacy’, like a common language, and ‘findability’ through shared social networks facilitating social sanctions;
- Third, a strategy selection mechanism: social norms urging group members to select cooperative strategies under the threat of sanctions.
The authors conducted experimental games with subjects from Kampala, Uganda, characterised by strong ethnic diversity and low levels of public goods provision, to investigate which of these mechanisms were important. Participants were able to identify the other players, either through face-to-face interaction or a visual representation. The results suggest that successful public goods provision in homogeneous ethnic communities can be attributed to a within-group social norm of cooperation (strategy selection mechanism) supported by close links on social networks enabling credible threats of sanctions (technology mechanism). They find no evidence of a prominent preference mechanism. However, because only a negligible fraction of the subjects reported that they knew the other participants, an interesting alternative mechanism – the role of affective interpersonal relationships – could not be investigated.
Affective social ties
Recent studies suggest that affective social ties are important to the provision of public goods and the impact of migration (see the survey of van Winden et al., 2008). In these studies, a social tie is defined as an affective weight attached by an individual to the well-being or utility of another, specific individual. A social tie develops over time under the influence of social interaction, unlike a trait like altruism or any general preference to promote the utility of in-group members versus out-group members.
Moreover, a tie is not related to strategic behaviour but generated by uncontrolled affective responses. Interactions perceived as beneficial are hypothesised to induce positive sentiments, contributing to the development of a positive tie, whereas interactions perceived as detrimental induce negative sentiments, contributing to a negative tie. A theoretical model of this mechanism shows that taking account of social ties helps explain why people succeed or fail in providing public goods (van Dijk and van Winden, 1997). Migrations can have a negative effect by breaking up existing ties (via emigration) or causing partial networks of affective ties (via immigration). Also, government provision can have negative welfare consequences by crowding out this form of intrinsic motivation, unless a community is characterised by mostly negative ties.
A first shot at investigating the potential strength of this ‘social ties’ mechanism is to check whether people experiencing beneficial (detrimental) interaction care more (less) about the person with whom they interacted. One way to do this is to compare people’s willingness to help (or hurt) another person financially before and after interaction in a public good game. For example, if people are willing to help their playing partner after the game more than when he or she was an arbitrary stranger, then the game seems to have built a positive tie.
Using this measure, a series of laboratory experiments on voluntary public good provision have provided substantial support for the existence of a social ties mechanism (van Dijk et al., 2002). Importantly, this evidence has been obtained under weak circumstances in the sense that the games were completely anonymous ― people neither saw nor communicated with each other.
More direct support for the hypothesis that feelings are important has been obtained in two ways, one using self-reports and another using neural measures. In an experiment employing a related type of (social dilemma) game, participants were asked immediately after repeated interaction to indicate the intensity with which they felt several emotions (like anger and joy) at that particular moment (Brandts et al., 2007). A careful analysis showed that, as hypothesised, the reported feelings appeared to mediate the impact of the interaction on the valence and strength of the tie.
The role of emotions and feelings is also highlighted by recent neuroeconomic studies, using brain scanning (fMRI). In one experiment, increased activation in brain areas playing an essential role in the processing of rewards (Striatum and Ventromedial prefrontal cortex) occurred after a human partner reciprocated cooperation, but not when the partner was a computer or an equivalent amount of money was simply provided (Rilling et al., 2004). These results indicate that successful interaction with a human partner is particularly rewarding, and are suggestive of the development of a positive tie. More generally, the Striatum is considered to be part of a modality-independent network of reward structures that is specialised to mediate attachment (Insel and Young, 2001). This network is rich in receptors of Oxytocin, a neuropeptide that is well known for its relationship with attachment and caring behaviour.
In another experiment, activity in pain-related brain areas (Anterior insula and the Anterior cingulate cortex) was modulated as a function of whether participants liked or disliked their partner in the (trust) game they played before (Singer et al., 2006). Observing partners who played unfairly in the game receive painful stimulation appeared to attenuate the activation of these areas. In fact, in male participants the effect was accompanied by increased activity in reward-related areas (Striatum), which are also correlated with an expressed desire for revenge. These outcomes are suggestive of a negative tie, as subjects perceive the other’s pain as rewarding. This neural evidence supports the view that brain activity in the public good game may be modulated as a function of a social tie.
These findings are encouraging for further research on the role of affective social ties in promoting the voluntary provision of public goods. For example, one important issue is how this mechanism performs with large or ethnically diverse groups (see Pettigrew, 1998). In any case, it sheds new light on why some groups are successful in the provision of public goods whereas others dramatically fail. Moreover, social ties have a much wider scope and relevance. For example, people’s health and subjective well-being appear to depend on affective interpersonal relationships. Furthermore, it generates novel ideas for important issues in Industrial Organisation, like collusion, which may be furthered by positive social ties. In The Theory of Moral Sentiments Adam Smith argued that social ties abound even in competitive business environments: “Colleagues in office, partners in trade, call one another brothers; and frequently feel towards one another as if they really were so. Their good agreement is an advantage to all”.1 It seems that the time is ripe now for a more definitive incorporation of this dynamic concept in economic analysis.
Brandts, J., A. Riedl, and F. van Winden, 2007, "On Competition and Well-being: An Experimental Investigation into Rivalry, Social Disposition and Subjective Well-being", Working paper.
Habyarima. J., M. Humphreys, D.N. Posner, and J.M. Weinstein, 2007, "Why Does Ethnic Diversity Undermine Public Good Provision?“, American Political Science Review, 101, 709-725.
Insel, T. R. and L.J. Young, 2001, "The Neurobiology of Attachment", Nature Reviews Neuroscience, 2, 129-36.
Pettigrew, T.F., 1998. "Intergroup contact theory". Annual Review of Psychology, 49, 65-85.
Rilling, J. K., A.G. Sanfey, J.A. Aronson, L.E. Nystrom, and J.D. Cohen, 2004, "Opposing BOLD Responses to Reciprocated and Unreciprocated Altruism in Putative Reward Pathways", Neuroreport, 15, 2539-43.
Singer, T., B. Seymour, J.P. O'Doherty, K.E. Stephan, R.J. Dolan, C.D. and Frith, 2006, "Empathic Neural Responses are Modulated by the Perceived Fairness of Others", Nature, 439, 466-9.
Sonnemans, J., F. van Dijk, and F. van Winden, 2006, "On the Dynamics of Social Ties Structures in Groups", Journal of Economic Psychology, 27, 187-204.
van Dijk, F., J. Sonnemans, and F. van Winden, 2002, "Social Ties in a Public Good Experiment", Journal of Public Economics, 85, 275-299.
van Dijk, F. and F. van Winden, 1997, "Dynamics of Social Ties and Local Public Good Provision", Journal of Public Economics, 64, 323-341.
van Winden, F., M. Stallen, and K.R. Ridderinkhof, 2008, "On the Nature, Modeling, and Neural Bases of Social Ties". Forthcoming in: D. E. Houser and K. A. McCabe (Eds.), Neuroeconomics, Emerald Insight Publishing.
1 Part VI, Section II.