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Cambridge Journal of Economics Advance Access originally published online on April 17, 2008
Cambridge Journal of Economics 2008 32(5):703-724; doi:10.1093/cje/ben011
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© The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Cross-racial envy and underinvestment in South African partnerships

Daniel Haile, Abdolkarim Sadrieh and Harrie A. A. Verbon*

* Wageningen University, University of Magdeburg and Tilburg University, respectively

Address for correspondence: Department of Economics, Tilburg University, PO Box 90153, 5000 LE Tilburg, The Netherlands; email: H.A.A.Verbon{at}uvt.nl

Trust games are employed to investigate the effect of heterogeneity in income and race on cooperation in South Africa. The amount of socio-economic information available to the subjects about their counterparts is varied. No significant behavioural differences are observed when no such information is provided. However, when the information is available, it significantly affects individual trust behaviour. The low income subjects from both racial groups invest significantly less in partnerships with the high income subjects of the other racial group than in any other partnership. We attribute this behaviour to cross-racial envy, which on aggregate may lead to substantial efficiency losses.

Key Words: Trust game • Ethnic diversity • Income inequality • Cooperation

JEL classifications: C91, J15

Manuscript received September 11, 2006; final version received September 11, 2007.


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