Work Incentives In a Model of Collective With and Without Universal Membership

In this paper we focus on the role of expulsion by a collective to explain the agricultural performance in China during the post-1958 period. We model the collective as having access to a costly and imperfect monitoring technology whereby it can punish members if caught shirking either through expulsion or through a reduction in pay We show that under plausible assumptions about tastes and technology, the threat of expulsion generates greater incentives for both the collective and members to monitor and provide higher effort, respectively. Our model contrasts with the exit right hypothesis advanced by Lin (1990) where the credibility of exit threat is debatable. The threat of expulsion in our model constitutes not only a credible threat but also generates a richer set of equilibrium outcomes which better suit the reality of Chinese collectives.