New economic redistribution scheme for wealth could benefit everyone

Professors Hintze and Staudacher have researched the public goods game and found a new economic redistribution scheme that challenges the selfish interest to withhold money.

The public goods game is a commonly used standard in experimental economics. In the public goods game, all players receive the same amount of money and now decide to either keep it to themselves (defect) or contribute to the common goods (cooperate). The pooled goods can now grow in value due to the synergy the group experiences. Finally, the common goods, grown in value, are distributed to all players, also those who withheld their contribution. Known as the "tragedy of the commons," it turns out that those players who withhold their contribution will always fair better than the cooperators. This model is used to illustrate how actions based on self-interest can be detrimental to the common goods.

Can unconditional basic income overcome economic hardship?

Those game theory models might sound dry and abstract, but we witness their application on a large scale. The covid-19 pandemic creates economic hardship, and stimulus packages like those proposed in the US, where everyone receives $600 or $2000 as a single payment, presents us with the same situation described in the public goods game. They are also not unlike unconditional basic income. While some say that they will drive the economy, others argue that this makes people complacent and lazy: "Why should I work if I can live happily from my governmental guaranteed basic income?"

Redistribution is better than costly punishment

The predominant strategy to avoid the "tragedy of the commons" is costly punishment - you go to jail for not paying your taxes. But this does not work for unconditional basic income. Thus we explored a different idea: Inclusive groups. These groups determine how much everyone would receive individually based on their decisions and how much everyone would receive if all payoffs were pooled and shared equally. A redistribution key, say here 20%, defines how much of each player's payoff comes from their individual decisions (in this example, 80%) and how much comes from the total pooled value (in this example, 20%). And now, something curious happens. Because of this inclusive redistribution, the selfish interest to withhold your money is challenged. Defectors still receive 80% of what they received before, but the other 20% of their income depends heavily on the contributions to the public goods.

The 20% used in the example is fictional. When this distribution key is 0%, the regular public goods game is played. If the redistribution in 100% every player receives the same, effectively eliminating the "tragedy of the commons." The question is now, how high does this redistribution key has to be to overcome "tragedy of the commons." Using extensive computational evolutionary modeling and deriving a lot of mathematical equations, we show in our latest paper in Scientific Reports "Inclusive groups can avoid the tragedy of the commons" that this redistribution key can be fairly low. And maybe, more importantly, it works synergistically with costly punishment: Inclusive groups can cooperate at much lower synergies, and their cooperation is much less dependent on costly punishment.

What does this mean for unconditional basic income?

This work suggests that we might not want to pay this income unconditionally. Instead, we should couple it to the economic success of our social group. If a community grows economically, because people invest their now conditional basic income driving the local economy, they can expect to receive a higher basic income in the future. Ironically, it also suggests that you shouldn't lie about withholding your taxes. Because, if you lie, the total amount collected by all players would be smaller, reducing the now conditional basic income. And since the economic incentive is now placed back to the common goods, self-interest dictates to cooperate again.

Before we start changing our economic system, we need to do a lot more research. This work introduced the concept of "Inclusive Groups" and showed its use only in computational models and on the whiteboard as mathematical equations. But it also suggests that we have to think hard about unconditional basic income since conditional basic income might present a much better alternative.

Professor Dr. Arend Hintze, Dalarna University, Sweden

Professor Dr. Jochen Staudacher, Kempten University of Applied Science, Germany

Access the paper

Hintze, Arend, Staudacher, Jochen, Gelhar, Katja, Pothmann, Alexander, Rasch, Juliana, Wildegger, Daniel. Inclusive groups can avoid the tragedy of the commons, Scientific Reports, 2020, Vol. 10, No. 1. 

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