Voluntary versus Compulsory Solidarity: Theory and Experiment

We present an overlapping-generations model with two interacting teams, where young team members earn an income, whereas old team members depend on either intrateam transfers from young members (voluntary solidarity) or tax-financed transfers (compulsory solidarity). We derive the individually and team-specifically optimal decisions and present further behavioral hypotheses, including the crowding out of voluntary by compulsory solidarity. We test our hypotheses in an experimental study and examine (1) whether raising taxes crowds out voluntary transfers, (2) how income distributions influence voluntary and compulsory solidarity, and (3) whether participants prefer more to less compulsory solidarity.