Endogenous Group Formation

Abstract

While the rules governing the formation of groups engaging in collective action may have significant impact on group size and behavior of members, most experiments on public goods have been conducted with the subjects in fixed groups or of fixed sizes. We study endogenous formation of groups in a public-goods provision game by allowing subjects to change groups under three sets of rules: free entry and exit, restricted entry and free exit, and free entry and restricted exit. We find that the rules governing entry and exit do have a significant impact on individual behavior and group-level outcomes.

Keywords: Public Goods, Group Formation, Social Networks

JEL Classification: C92, H41, D85