University of Oslo Economics Memorandum No. 09/2005
23 Pages Posted: 15 May 2005
Date Written: April 2005
To secure their membership in a popular group, individuals may contribute more to the group's local public good than they would if group formation were exogenous. Those in the most unpopular group do not have this incentive to contribute to their group. Substantial differences in individual efforts levels between groups may be the result. A principal may prefer either exogenous or endogenous group formation, depending on whether an increase in contributions to the local public good coincides with the principal's interests. We analyze two examples: Social interaction in schools, and multiple-task teamwork.
Keywords: Local public goods, opportunity costs, popularity, multiple-task principal-agent analysis
JEL Classification: C72, D11, D23, L24, Z13
Suggested Citation: Suggested Citation
Brekke, Kjell Arne and Nyborg, Karine and Rege, Mari, The Fear of Exclusion: Individual Effort when Group Formation is Endogenous (April 2005). University of Oslo Economics Memorandum No. 09/2005. Available at SSRN: https://ssrn.com/abstract=721524 or http://dx.doi.org/10.2139/ssrn.721524