Endogenous Group Formation via Unproductive Costs
AbstractHow and why do groups form? In many cases, group formation is endogenous to the actions that individual members take and the norms associated with these actions. In this paper, we conduct an experiment that allows groups to form endogenously in the context of the classic voluntary contribution mechanism public goods game. We identify unproductive costs – “sacrifice” – as a mechanism for endogenous group formation, a result which is consistent with the “sacrifice and stigma” theory of religious groups. We find that changes in relative prices (between private and public goods) act to screen out free-riders, subjects who choose high-sacrifice groups contribute more to the public good once in these groups, and moderate welfare gains are available to those who voluntarily incur unproductive costs.
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Bibliographic InfoPaper provided by Towson University, Department of Economics in its series Working Papers with number 2010-15.
Length: 48 pages
Date of creation: Aug 2010
Date of revision: Sep 2010
Endogenous Group Formation; Laboratory Experiment; Free Riding; Public Goods Game; Voluntary Contribution Mechanism; Sacrifice; Unproductive Costs.;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- Z12 - Other Special Topics - - Cultural Economics - - - Religion
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-03 (All new papers)
- NEP-EXP-2010-09-03 (Experimental Economics)
- NEP-GTH-2010-09-03 (Game Theory)
- NEP-LTV-2010-09-03 (Unemployment, Inequality & Poverty)
- NEP-PBE-2010-09-03 (Public Economics)
- NEP-SOC-2010-09-03 (Social Norms & Social Capital)
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