BEER Lab Meeting - Renke Schmacker

Loopholes exist in numerous environments, ranging from the tax system to the workplace. For example, tax loopholes allow individuals to withdraw from financing the public good and to make themselves better off. Some people ascribe credit to the clever exploitation of loopholes, for example, Donald Trump famously bragged in the 2016 Presidential race that getting by without paying taxes "makes me smart." I will present an experimental design to study whether and under which conditions individuals consider the exploitation of loopholes acceptable. The experiment features two types of participants: workers and spectators. Workers produce a private good and a common good for their group by performing as many additions as possible. The common good is redistributed to the group members, but workers can exploit a loophole in the experimental rules to increase their own payout and free-ride on the production of others. In separate treatments, we study whether individuals would like to sanction workers who exploited the loophole and/or whether they would like to close the loophole for a future session. The role of spectators is to elicit impartial views on whether exploiting the loophole is socially acceptable or not. In further treatments, we vary whether the task is framed as an intelligence or effort task to study the impact of different concepts of meritocracy.