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Endogenous Group Formation and Public Goods Provision: Exclusion, Exit, Mergers, and Redemption

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  • Charness, Gary B
  • Yang, Chun-Lei

Abstract

We test a mechanism whereby groups are formed endogenously, through the use of voting. Once formed, groups play a public-goods game, where there are economies of scale: in two treatments the social value of an incremental contribution to the group account increases with the size of the group, but in the second treatment, the social value is capped once a certain group size is reached. Societies of nine people are initially formed randomly into three groups of three people who play the game for three periods. Individuals then learn about the average contribution of each individual (by ID number) in one’s current own group, as well as the average contribution in other groups, and can decide whether to exit the group. Remaining group members choose whether to exclude any current members from the group; the new groups and ‘free agents’ then choose whether to merge with other existing groups and/or other free agents. We find a great degree of success for this mechanism. The average contribution rate is quite high in both treatments, but is modestly (albeit significantly) higher in the first treatment, when there is no cap on the social value of a contribution. In the first treatment, we see large and stable groups forming, but we see considerably more instability and smaller group sizes in the second treatment. The driving force appears to be the economies of scale combined with the awareness that bad behavior will result in ostracism, but in the Athenian sense of possible redemption. This redemption is a unique feature of our environment, with about one-third of the population becoming good citizens after initially being low contributors.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt0hx472pn.

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Date of creation: 29 Sep 2008
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Handle: RePEc:cdl:ucsbec:qt0hx472pn

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Keywords: Endogenous group formation; Exclusion; Experiment; Merger; Ostracism; Public goods; Social efficiency; Voting;

References

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  1. Talbot Page & Louis Putterman & Bulent Unel, 2005. "Voluntary Association in Public Goods Experiments: Reciprocity, Mimicry and Efficiency," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(506), pages 1032-1053, October.
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Citations

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Cited by:
  1. List, John A. & Rasul, Imran, 2011. "Field Experiments in Labor Economics," Handbook of Labor Economics, Elsevier, Elsevier.
  2. Gürerk, Özgür & Irlenbusch, Bernd & Rockenbach, Bettina, 2009. "Voting with Feet: Community Choice in Social Dilemmas," IZA Discussion Papers 4643, Institute for the Study of Labor (IZA).
  3. Claudia Keser & Claude Montmarquette, 2011. "Voluntary versus Enforced Team Effort," Games, MDPI, Open Access Journal, MDPI, Open Access Journal, vol. 2(3), pages 277-301, August.
  4. Charness, Gary & Yang, Chun-Lei, 2014. "Starting small toward voluntary formation of efficient large groups in public goods provision," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 102(C), pages 119-132.

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