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Pricing Group Membership

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  • Siddhartha Bandyopadhyay
  • Antonio Cabrales

Abstract

We consider a model where agents differ in their ‘types’ which determines their voluntary contribution towards a public good. We analyze what the equilibrium composition of groups are under centralized and centralized choice. We show that there exists a top-down sorting equilibrium i.e. an equilibrium where there exists a set of prices which leads to groups that can be ordered by level of types, with the first k types in the group with the highest price and so on. This exists both under decentralized and centralized choosing. We also analyze the model with endogenous group size and examine under what conditions is top-down sorting socially efficient. We illustrate when integration (i.e. mixing types so that each group's average type if the same) is socially better than top-down sorting. Finally, we show that top down sorting is efficient even when groups compete among themselves.

Suggested Citation

  • Siddhartha Bandyopadhyay & Antonio Cabrales, 2020. "Pricing Group Membership," CESifo Working Paper Series 8498, CESifo.
    • Handle: RePEc:ces:ceswps:_8498
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    1. Evan Sadler & Benjamin Golub, 2021. "Games on Endogenous Networks," Papers 2102.01587, arXiv.org, revised Feb 2024.

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    More about this item

    Keywords

    top down sorting; group formation; public good; segregation; integration;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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