Symbols, Group Identity and the Hold-Up Problem

Abstract

Groups, companies, and organizations identify themselves via symbols. Symbols have the potential to create group identity and at the same time create group boundaries, thus allowing for achieving the benefits of cooperation by ingroup members. We use a laboratory experiment to study the role of group identity, created by the use of symbols, in mitigating the hold-up problem. As a team symbol we employ color t-shirts. We find that the usage of t-shirts itself does not create a strong enough group identity to mitigate the hold-up problem. However, in our previous research, we found that group identity created by t-shirts and a group chat aimed to help team members to solve a task is capable of resolving the hold-up problem. These findings are consistent with the everyday practice where organizations often make significant investments in team-building and socialization activities, suggesting that an important objective of such activities might be to strengthen group identity so that it is effective even in highly strategic environments.

Keywords: altruism, experiment, group identity, hold-up problem, other-regarding preferences, relation-specific investment, symbols, team membership

JEL Classification: C91, D20, L20