Simultaneous inter- and intra-group conflicts
Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004This paper models the trade-off between production and appropriation in the presence of simultaneous inter- and intra-group conflicts. The model exhibits a â€˜group cohesion effect â€™: if the contest between the groups becomes more decisive, or contractual incompleteness between groups becomes more serious, the players devote fewer resources to the intra-group conflict. Moreover, there is also a â€˜reversed group cohesion effectâ€™: if the intra-group contests become less decisive, or contractual incompleteness within groups becomes less serious, the players devote more resources to the inter-group contest. The model also sheds new light on normative questions. I derive exact conditions for when dividing individuals in more groups leads to more productive and less appropriative activities. Further, I show that there is an optimal size of the organization which is determined by a trade-off between increasing returns to scale in production and increasing costs of appropriative activities.
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