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Why are Heterogenous Communities Inefficient? Theory, History and an Experiment

28 Pages Posted: 28 Feb 2015  

David Hugh-Jones

University of East Anglia (UEA)

Carlo Perroni

University of Warwick - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 26, 2015

Abstract

We examine why heterogenous communities may fail to provide public goods. Current work characterizes sanctioning free-riders as an under-supplied public good. We argue that often free-riders can be punished by the coordinated action of a group. This punishment can be profitable, and need not be undersupplied. But the power to expropriate defectors can also be used to expropriate outgroups. Heterogenous societies may be inefficient because minorities, rather than free-riders, are expropriated. Even if this is not so, groups’ different beliefs about the reasons for expropriation may make the threat of punishment less effective at preventing free-riding. We illustrate our theory with evidence from California mining camps, contemporary India, and US schools. In a public goods experiment using minimal groups and a profitable punishment institution, outgroups were more likely to be punished, and reacted differently to punishment than ingroup members.

Keywords: group coercion, social heterogeneity

JEL Classification: H1, H4, N4, D02

Suggested Citation

Hugh-Jones, David and Perroni, Carlo, Why are Heterogenous Communities Inefficient? Theory, History and an Experiment (February 26, 2015). Available at SSRN: https://ssrn.com/abstract=2570940 or http://dx.doi.org/10.2139/ssrn.2570940

David Hugh-Jones (Contact Author)

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

Carlo Perroni

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
44 24 7652 8416 (Phone)
44 24 7652 3032 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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