Economic Inequality and Social Capital

The Postcode Lottery runs a weekly lottery, the Street Prize, in which they randomly select a postcode in the Netherlands. All lottery subscribers in this winning postcode earn a substantial amount. This lottery generates an exogenous increase in income inequality in the neighborhood of the Street-Prize winning postcode. The Postcode Lottery also randomly selects postcodes that are awarded consolation prizes. Because these consolation prizes are small, they have a negligible effect on income inequality in neighborhoods that contain the consolation-prize winning postcode. The treatment group will comprise households living adjacent to (but outside) a postcode that won the Street Prize. The control group will comprise households living adjacent to (but outside) a postcode that won a consolation prize.

2024-04-08

2025-04-20

Our primary outcome will be an index constructed from two outcomes: (1) a question on trust and (2) behavior in an incentivized task designed to measure honesty.

Participants will be asked the following question to measure trust: “How strongly do you agree with the following statement? Most people living in my neighborhood can be trusted.” Participants will answer using a scale from 0 (“Don’t agree at all”) to 10 (“Fully agree”).
Honest behavior will be measured using the so-called “mind game.” The screen will show a card face down. Participants will be told that there is a 50-50 chance that the card is either red or black. Then, they will be asked to guess the color of the card and make a mental note of their guesses. At this point, the screen will reveal the color of the card and participants will be asked to report which color they had guessed originally. There will be 16 trials in total. At the end of the survey, one of the 16 trials will be randomly selected for payment. A participant will earn €10 if she guessed correctly in the selected trial. As a result, the participant can increase her chances of earning €10 if she misreports her guess in a trial in which she had guessed the wrong color. Although it will not be possible to identify whether a specific participant cheated, we will be able to infer cheating at the group level by comparing the reported number of correct guesses to the theoretical benchmark under truthful reporting (i.e., 50 percent).
We will construct an index (e.g., Anderson 2008) out of the trust question and the reported number of correct guesses (as a proxy for cheating). Although the index will be our main outcome, we will also separately estimate the effects on each of the two primary outcomes.
Anderson, M. L. (2008). Multiple inference and gender differences in the effects of early intervention: A reevaluation of the Abecedarian, Perry Preschool, and Early Training Projects. Journal of the American statistical Association, 103(484), 1481-1495.

We will collect data on secondary outcomes to explore the following potential mechanisms through which income inequality may affect social capital: (a) competitiveness; (b) neighborhood cohesiveness; (c) envy; and (d) perceived unfairness. We will also measure happiness to assess the potential side-effects of inequality on mood.

To measure competitiveness, participants will be asked the following question:
“To what extent do you agree with the following statements?
Nowadays, it seems like…
a) ...winning is not the first thing; it is the only thing.
b) …life is governed by the “survival of the fittest”.
c) ...it is a dog-eat-dog world where you have to be ruthless at times.”
They will answer this question using a scale from 0 (“Don’t agree at all”) to 10 (“Fully agree”).
Neighborhood cohesiveness will be assessed using the following two questions:
a) Our social lives in the neighborhood wax and wane, changing from time to time. Over the last few months, how has the sense of community changed in your neighborhood? Participants will answer using a scale from -5 (“Much weaker sense of community”) to +5 (“Much stronger sense of community”).
b) As you think about your interactions with the people in your neighborhood over the last few months, have they become friendlier, less friendly, or have they stayed the same? Participants will answer using a scale from -5 (“Much less friendly”) to +5 (“Much more friendly”).
Envy will be measured by asking participants how strongly they agree with the following statements:
a) When I walk through my neighborhood, I sometimes feel envious of how much money some people in my neighborhood have. Participants will answer using a scale from 0 (“Don’t agree at all”) to 10 (“Fully agree”).
b) When I walk through my neighborhood, I often catch myself wishing I had as much money as some people in my neighborhood have. Participants will answer using a scale from 0 (“Don’t agree at all”) to 10 (“Fully agree”).
To measure perceived unfairness, participants will be asked how strongly they agree with the following statement:
Walking through the neighborhood, I sometimes think about how unfair it is that some people in my neighborhood have so much money while other people in my neighborhood have so little. Participants will answer using a scale from 0 (“Don’t agree at all”) to 10 (“Fully agree”).

Although the effect of the Postcode Lottery on inequality in the Netherlands as a whole is negligible, it is possible that an increase in neighborhood inequality may affect not only one’s trust in one’s neighbors but also one’s trust in people more generally. To investigate this possibility, participants will also be asked the following question: “How strongly do you agree with the following statement? Most people living in the Netherlands can be trusted.” Participants will answer this question using a scale from 0 (“Don’t agree at all”) to 10 (“Fully agree”).
Finally, the potential emotional effects of inequality will be assessed by asking participants the following question: “Overall, how happy would you say you are? Please give a number between 0 (extremely unhappy) and 10 (extremely happy)”

The Postcode Lottery also randomly selects postcodes that are awarded consolation prizes. These postcodes provide a valid counterfactual for the postcodes that win the Street Prize. Our empirical strategy will compare households living adjacent to (but outside) a postcode that won the Street Prize to households living adjacent to (but outside) a postcode that won a consolation prize.

Not available

Public lottery.

The unit of randomization is a postcode.

Yes

1,134 postcodes (this is the number of targeted postcodes; in practice there will be fewer postcodes in the data because in some of them none of the invited participants will answer the survey).

We are planning to recruit subjects for about 54 weeks. Based on a response rate of 20% we expect a total sample size of roughly 1,300 participants.

To increase the number of potential participants per week, we will over-sample the control group by a factor of 2:1.

Assuming an intra-cluster correlation of ρ = 0.15, the minimum detectable effect size is approximately 0.225 standard deviations (at the 5% significance level and with a power of 80%).