Delaying Gratification and Inequality

Working paper for the day- The origins of monetary income inequality- Patience, human capital, and division of labor. Conclusion excerpted below;

"In this article, we have presented and tested an explanation linking patience, the accumulation of different forms of human capital, self-selection into different occupations, and the growth of monetary income inequality. We found some evidence that patient and impatient people differed in the type of human capital they acquire and in the occupations they pursue, but we do not find strong evidence that occupational differences are associated with noticeable divergence in rates of income growth. Results of the 1999–2000 analysis hold up mainly when using food, rather than money, to elicit patience; the use of an exponential or a hyperbolic discount rate did not affect the results.

Our findings support recent research in embodied capital: those choosing to invest in formal schooling trade off immediate productivity from engaging in traditional activities for delayed benefits from better-paid activities that require schooling, and those who choose not to attend school give up larger future benefits for immediate productivity (Bock, 2002).

Our explanation complements Kuznets’ hypothesis about the growth of income inequality at low levels of income or during the formative stages of economic development. We have added an ethnographic layer to Kuznets’ insight about the initial upsurge of income inequality at low levels of income. We have explained why there might be self-selection into different occupations during the early stages of economic growth. We have found positive associations between impatience and the type of human capital people accumulate, and between different types of human capital and the choice of occupations people pursue. We also found some evidence that patience is associated with higher quarterly growth rates of various forms of monetary income, but results were statistically insignificant. Five years after baseline measures, patient people had higher earnings from wage labor, better indicators of short-term nutritional status, and better self-perceived health than impatient people, but attrition bias might have accentuated the difference.

We end by posing a question for future study. Why would people in the early stages of market exposure allow monetary income inequality to rise from a presumably egalitarian initial base? At least two possible related explanations come to mind. One explanation says that income inequality in a society offends people’s sense of fairness, producing anger and resentment (Brosnan & de Waal, 2003), but does not produce adverse effects on socioeconomic indicators of individual well-being, such as health or nutritional status, at least in the short run. If so, people in past foraging societies perhaps looked the other way and allowed income inequality to emerge because they sensed that it did not hurt them personally. The second related explanation traces the absence of mechanisms to curb inequality to myopia and social capital. The initial growth of income inequality might not have harmed visible indicators of individual well-being as long as strong forms of social capital, such as generalized reciprocity and gift-giving, acted as cushions to protect people (Kawachi & Kennedy, 2002; Kawachi, Kennedy, & Wilkinson, 1999; Wilkinson, 1996; Williams, 1998). The impatient were unlikely to detect the long-term consequences of emerging income inequality, both because local forms of social capital inoculated them against mishaps and because the impatient, in the short term, may have enjoyed higher levels of income than their patient peers. The myopia that made the impatient consume now rather than later would have also clouded their understanding of the possible adverse long-term effects of income inequality on their well-being. With a greater ability to see the future with clarity, patient people probably started to invest in other forms of self-insurance and to rely less on superannuated forms of social capital. There, then, might hang the tale about the origins of monetary income inequality."

Via The Economist article, Economics and anthropology- Patient capital;

"One phenomenon that is almost unique to humans is deferred gratification—in other words, patient anticipation of a reward. Dr Reyes-Garcia and her colleagues therefore guessed that as the Tsimane' became more enmeshed in modern society, the more patient of them would do better than the less. The Tsimane's traditional subsistence economy depends on folk knowledge and learned skills that have quick pay-offs. Formal schooling does not pay off for years, but opens the door to bigger potential incomes.

To test their idea, the researchers offered all 151 adults in two Tsimane' villages a choice between receiving a small amount of money or food immediately, getting a larger amount if they were willing to wait a week, and getting a larger amount still in exchange for several months' wait for payment. They found that the more education a villager had, the longer he was willing to delay gratification in return for a bigger reward."