Pricing Group Membership

24 Pages Posted: 18 Aug 2020

See all articles by Siddhartha Bandyopadhyay

Siddhartha Bandyopadhyay

University of Birmingham - Department of Economics

Antonio Cabrales

University College London - Department of Economics; Centre for Economic Policy Research (CEPR); Charles III University of Madrid

Multiple version iconThere are 2 versions of this paper

Date Written: August 2020

Abstract

We consider a model where agents differ in their `types' which determines their voluntary contribution towards a public good. We analyze what the equilibrium composition of groups are under centralized and centralized choice. We show that there exists a top-down sorting equilibrium i.e. an equilibrium where there exists a set of prices which leads to groups that can be ordered by level of types, with the first k types in the group with the highest price and so on. This exists both under decentralized and centralized choosing. We also analyze the model with endogenous group size and examine under what conditions is top-down sorting socially e cient. We illustrate when integration (i.e. mixing types so that each group's average type if the same) is socially better than top-down sorting. Finally, we show that top down sorting is efficient even when groups compete among themselves.

Keywords: Group-formation, integration, Public Good, Segregation, Top-down sorting

JEL Classification: D02, D64, D71, H41

Suggested Citation

Bandyopadhyay, Siddhartha and Cabrales, Antonio, Pricing Group Membership (August 2020). CEPR Discussion Paper No. DP15137, Available at SSRN: https://ssrn.com/abstract=3674925

Siddhartha Bandyopadhyay (Contact Author)

University of Birmingham - Department of Economics ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom

Antonio Cabrales

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Charles III University of Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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