An examination of the effect of inequality on lotteries for funding public goods

We experimentally study the impact of inequality on the effectiveness of contests for funding public goods in a development context. We observe that the typical result of a lottery funding mechanism leading to greater funding for the public good than predicted by theory extends to groups with inequality. However, while theory suggests that increased inequality should lower total contributions to a lottery funded public good, we observe the opposite pattern. This result differs from prior results for the standard voluntary contribution mechanism where increased inequality has been found to reduce public good provision. Moreover, we find that the poor do not contribute a greater share of their endowment to the public good than do the wealthy. Thus, overall our study demonstrates the potential for community development projects, when funded with a lottery mechanism, to be highly successful even in the presence of inequality and may facilitate a progressive redistribution of wealth.