Endogenous group formation via unproductive costs

Jason A. Aimone, Laurence R. Iannaccone, Michael D. Makowsky, Jared Rubin

Research output: Contribution to journalArticlepeer-review

Abstract

Sacrifice is widely believed to enhance cooperation in churches, communes, gangs, clans, military units, and many other groups.We find that sacrifice can also work in the lab, apart from special ideologies, identities, or interactions. Our subjects play a modifiedVCMgame-one in which they can voluntarily join groups that provide reduced rates of return on private investment. This leads to both endogenous sorting (because free-riders tend to reject the reduced-rate option) and substitution (because reduced private productivity favours increased club involvement). Seemingly unproductive costs thus serve to screen out free-riders, attract conditional cooperators, boost club production, and increase member welfare. The sacrifice mechanism is simple and particularly useful where monitoring difficulties impede punishment, exclusion, fees, and other more standard solutions.

Original languageEnglish (US)
Article numberrdt017
Pages (from-to)1215-1236
Number of pages22
JournalReview of Economic Studies
Volume80
Issue number4
DOIs
StatePublished - Oct 2013

Keywords

  • Club goods
  • Endogenous group formation
  • Free riding
  • Laboratory experiment
  • Religion
  • Sacrifice
  • Self-selection
  • Voluntary contribution mechanism

ASJC Scopus subject areas

  • Economics and Econometrics

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