findings establish more than the mere existence of in-group favoritism; they suggest that inter-
group conflicts may increase it.
The effect of group conflicts on time, risk, and social preferences may affect the dynamics
of group conflicts. For example, if a war increases in-group altruism, people will be more likely
to contribute to collective action against the enemy, which may perpetuate the inter-group
conflict.9 Likewise, if a war increases the willingness to take individual risks, individuals will be
more willing to engage in risky behaviors against the enemy. Finally, if wars make people
impatient, this impatience may also extend to the perceived future returns from peace. If these
returns are discounted more steeply, people will be less willing to support peace agreements
between the conflicting parties. Thus, the potential impact of inter-group conflict on preferences
introduces a whole new dimension of effects that may help explain why reaching a peace
agreement in entrenched conflicts is so difficult.10
3.3. Endogenous Preferences and the Role of the Law: Entitlements and Default Rules
Preferences may also be directly affected by legal changes, such as an increase or a decrease in
minimum wage laws. Standard economic models of the labour market assume that workers’
reservation wages are not directly affected by changes in the legal minimum wage. Of course, for
a given reservation wage, variations in the minimum wage may affect the willingness of workers
to accept a job, but the legal minimum wage is assumed to have no effect on the reservation
wage. In a recent laboratory minimum wage experiment, Falk, Fehr and Zehnder (2006) show
that the subjects’ reservation wages differ depending on whether they have previously
experienced a situation with a minimum wage or not. Subjects who had experienced a minimum
wage previously, but for whom the minimum wage was abolished, displayed much higher
reservation wages compared to subjects who had never experienced a minimum wage. Thus it
9 The findings of Abbink et al. (2010) also suggest that the presence of intergroup conflict may render subjects so
willing to punish those who don’t contribute their fair share to the group’s collective action that the groups
collectively spend more on the “prize” over which they are fighting than it is worth to them.
10 There may be an additional effect of conflict on preferences through the effect on shared understandings. The
capacity for collective action is a matter not just of groups’ sharing interests, but also of a shared understanding of
the elements of a problem and its solution. In this view, the failure to act collectively can stem from the groups’
failure to ascribe a common meaning to a given situation. This problem may be especially severe in countries
characterized by endemic conflict, where institutions that might otherwise provide frames for a common
understanding of a situation have been weakened or destroyed (Gauri, Woolcock, and Desai, 2011).
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