Endogenous Group Formation via Unproductive Costs

40 Pages Posted: 25 Aug 2010 Last revised: 17 Nov 2010

See all articles by Jason Anthony Aimone

Jason Anthony Aimone

Baylor University - Department of Economics

Laurence R. Iannaccone

George Mason University - Department of Economics

Michael D. Makowsky

Clemson University - John E. Walker Department of Economics

Jared Rubin

Chapman University - The George L. Argyros School of Business & Economics

Date Written: August 24, 2010

Abstract

How and why do groups form? In many cases, group formation is endogenous to the actions that individual members take and the norms associated with these actions. In this paper, we conduct an experiment that allows groups to form endogenously in the context of the classic voluntary contribution mechanism public goods game. We identify unproductive costs – “sacrifice” – as a mechanism for endogenous group formation, a result which is consistent with the “sacrifice and stigma” theory of religious groups. We find that changes in relative prices (between private and public goods) act to screen out free-riders, subjects who choose high-sacrifice groups contribute more to the public good once in these groups, and moderate welfare gains are available to those who voluntarily incur unproductive costs.

Keywords: Endogenous Group Formation, Laboratory Experiment, Free Riding, Public Goods Game, Voluntary Contribution Mechanism, Sacrifice, Unproductive Costs

JEL Classification: C92, D71, H41, Z12

Suggested Citation

Aimone, Jason Anthony and Iannaccone, Laurence R. and Makowsky, Michael D. and Rubin, Jared, Endogenous Group Formation via Unproductive Costs (August 24, 2010). Available at SSRN: https://ssrn.com/abstract=1664264 or http://dx.doi.org/10.2139/ssrn.1664264

Jason Anthony Aimone

Baylor University - Department of Economics ( email )

P.O. Box 98003
Waco, TX 76798-8003
United States

Laurence R. Iannaccone

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Michael D. Makowsky (Contact Author)

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

HOME PAGE: http://michaelmakowsky.com

Jared Rubin

Chapman University - The George L. Argyros School of Business & Economics ( email )

One University Drive
Orange, CA 92866
United States

HOME PAGE: http://www.jaredcrubin.com

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