Richer individuals contribute more to the public good when forced to be transparent about their wealth - especially when they can be penalised for financial secrecy, a new study finds.
Motivated by what they describe as an "alarming rise" in economic inequality, a group of economists set out to examine how transparency and penalties can counter the negative effects of inequality on social cooperation.
They designed experiments using the 'public good game', used in economics to explore the factors that influence cooperation, in which groups of four decided how much of their own earnings to contribute to a shared pot.
The experiments mimicked workplace cooperation, with income differences arising either from individual skill alone or from a mix of skill and luck, and with players sometimes allowed to punish low contributors.
In the first experiment, pre-existing income gaps grew over time with advantaged players willing to pay to hide their luck‐based edge, and peer punishment for low contributions to the shared pot failing to slow the rising inequality.
In the second experiment, the researchers found that making everyone's earnings public greatly increased the power of punishment to boost contributions - and especially among advantaged players - whereas transparency without punishment had no impact on cooperation.
"Financial secrecy exacerbates inequality by enabling the wealthy and corporations to conceal their wealth, which we see through tools such as non-disclosure agreements and hidden pay scales that divide employees and intensify the negative effects of inequality," said co-author Dr Jingnan Chen, from the University of Exeter Business School.
"Our study offers a clear and powerful insight: openness about wealth encourages fairness and cooperation - especially when rule-breakers can be held to account."
The researchers say the findings have far reaching implications on a range of corporate issues, from executive pay secrecy to corporate tax avoidance.
"The ability to hide wealth can deepen inequality and erode trust. But with transparency and accountability, organisations - and societies - can foster greater fairness and social responsibility," said Dr Chen.
