Inefficient Group Organization as Optimal Adaption to Dominant Environments

24 Pages Posted: 17 Aug 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: August 17, 2010

Abstract

Contests between groups are plagued by intra-group externalities (free-riding). 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 Adaption to Dominant Environments (August 17, 2010). CESifo Working Paper Series No. 3157, Available at SSRN: https://ssrn.com/abstract=1660348

Martin Kolmar

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 (Contact Author)

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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