Simultaneous Inter- and Intra-Group Conflicts
Wissenschaftszentrum Berlin fuer Sozialforschung (WZB) - Market Processes and Governance
WZB, Markets and Political Economy Working Paper No. SP II 2005-08
This paper models the trade-off between production and appropriation in the presence of simultaneous inter- and intra-group conflicts. The model exhibits a 'group cohesion effect': 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 'reversed group cohesion effect': 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. Furthermore, 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.
Number of Pages in PDF File: 37
Keywords: Conflict, rent-seeking, federalism, hierarchy
JEL Classification: D72, D74, H11, H74working papers series
Date posted: May 18, 2005
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