Communities and social inefficiency with heterogeneous groups

We present a model where society is partitioned into groups, or communities, whose preferences may conflict. In particular, the actions of members of a certain group can inflict negative spillovers on members of other groups. We show that, on one hand, coordination at the group-level may be Pareto inefficient. However, on the other hand, by using a replicator equation approach where there is some moral pressure from co-members, we show that substantial compliance to group׳s norms arises endogenously. Our framework can also account for “cultural maladaptations”, i.e., the persistence of cultural traits which are harmful for community members, and for the society as a whole.