Meritocratic matching can dissolve the efficiency-equality tradeoff: the case of voluntary contributions

One of the fundamental tradeoffs underlying society is that between efficiency and equality. The challenge for institutional design is to strike the right balance between these two goals. Game-theoretic models of public-goods provision under ‘meritocratic matching’ succinctly capture this tradeoff: under zero meritocracy (society is randomly formed), theory predicts maximal inefficiency but perfect equality; higher levels of meritocracy (society matches contributors with contributors) are predicted to improve efficiency but come at the cost of growing inequality. We conduct an experiment to test this tradeoff behaviorally and make the astonishing finding that, notwithstanding theoretical predictions, higher levels of meritocracy increase both efficiency and equality, that is, meritocratic matching dissolves the tradeoff. Fairness considerations can explain the departures from theoretical predictions including the behavioral phenomena that lead to dissolution of the efficiency-equality tradeoff.