The Fear of Exclusion: Individual Effort when Group Formation is Endogenous
Kjell Arne Brekke
University of Oslo - Department of Economics; University of Oslo - Frisch Center
University of Oslo - Department of Economics; Institute for the Study of Labor (IZA)
Case Western Reserve University - Department of Economics
University of Oslo Economics Memorandum No. 09/2005
To secure their membership in a popular group, individuals may contribute more to the group's local public good than they would if group formation were exogenous. Those in the most unpopular group do not have this incentive to contribute to their group. Substantial differences in individual efforts levels between groups may be the result. A principal may prefer either exogenous or endogenous group formation, depending on whether an increase in contributions to the local public good coincides with the principal's interests. We analyze two examples: Social interaction in schools, and multiple-task teamwork.
Number of Pages in PDF File: 23
Keywords: Local public goods, opportunity costs, popularity, multiple-task principal-agent analysis
JEL Classification: C72, D11, D23, L24, Z13
Date posted: May 15, 2005
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