Inefficient Group Organization as Optimal Adaptation to Dominant Environments

20 Pages Posted: 24 Jul 2010

See all articles by Martin Kolmar

Martin Kolmar

University of St. Gallen - Institute of Economy and the Environment (IWOe-HSG); CESifo (Center for Economic Studies and Ifo Institute)

Andreas Wagener

Leibniz Universität Hannover - Economics and Business Administration Area; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Vienna University of Economics and Business Administration

Date Written: July 12, 2010

Abstract

Contests between groups are plagued by intra-group externalities (freeriding).Yet, costless incentive schemes that entirely avoid free-riding within a group might not be desirable, neither individually nor socially. In contests among two groups, a relatively weak (i.e., small or unproductive) group will optimally not implement them because they compound strength differences between groups. If both groups rein in their intra-group externalities, they are both worse off, compared to a situation with free-riding, if they are relatively similar. If they are sufficiently heterogenous, the weak group loses at the expense of the relatively strong group.

Keywords: Conflict, Incentives, Group-Size Paradox

JEL Classification: Z13, D72, N40, D74

Suggested Citation

Kolmar, Martin and Wagener, Andreas, Inefficient Group Organization as Optimal Adaptation to Dominant Environments (July 12, 2010). U. of St. Gallen Law & Economics Working Paper No. 2010-10. Available at SSRN: https://ssrn.com/abstract=1645263 or http://dx.doi.org/10.2139/ssrn.1645263

Martin Kolmar (Contact Author)

University of St. Gallen - Institute of Economy and the Environment (IWOe-HSG) ( email )

Varnbüelstrasse 14
CH-9000 St. Gallen
Switzerland
+41 (0)71 224 25 35 (Phone)
+41 (0)71 224 23 02 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Andreas Wagener

Leibniz Universität Hannover - Economics and Business Administration Area ( email )

Koenigsworther Platz 1
30167 Hannover
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Vienna University of Economics and Business Administration ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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