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The Fear of Exclusion: Individual Effort when Group Formation is Endogenous

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  • Kjell Arne Brekke
  • Karine Nyborg
  • Mari Rege

Abstract

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. This may result in substantial differences in individual effort level between groups. Our model thus provides one explanation for the existence of group‐specific behavioral norms. A principal will prefer exogenous or endogenous group formation depending on whether he prefers high or low levels of the local public good. We analyze two stylized examples: social interaction in schools, and multiple‐task teamwork.

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  • Kjell Arne Brekke & Karine Nyborg & Mari Rege, 2007. "The Fear of Exclusion: Individual Effort when Group Formation is Endogenous," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 531-550, September.
    • Handle: RePEc:bla:scandj:v:109:y:2007:i:3:p:531-550
    DOI: 10.1111/j.1467-9442.2007.00506.x
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    References listed on IDEAS

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    1. Ernst Fehr & Urs Fischbacher, "undated". "Third Party Punishment and Social Norms," IEW - Working Papers 106, Institute for Empirical Research in Economics - University of Zurich.
    2. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
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    5. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    6. Kjell Arne Brekke & Karine Nyborg & Mari Rege, 2007. "The Fear of Exclusion: Individual Effort when Group Formation is Endogenous," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 531-550, September.
    7. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    8. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    9. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
    10. Bård Harstad, 2005. "Majority Rules and Incentives," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1535-1568.
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    Cited by:

    1. Lionel Richefort, 2018. "Warm-glow giving in networks with multiple public goods," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(4), pages 1211-1238, November.
    2. Kjell Arne Brekke & Karine Nyborg & Mari Rege, 2007. "The Fear of Exclusion: Individual Effort when Group Formation is Endogenous," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 531-550, September.
    3. Nax, Heinrich H. & Balietti, Stefano & Murphy, Ryan O. & Helbing, Dirk, 2015. "Meritocratic matching can dissolve the efficiency-equality tradeoff: the case of voluntary contributions," LSE Research Online Documents on Economics 65443, London School of Economics and Political Science, LSE Library.
    4. Renaud Foucart & Jonathan H. W. Tan, 2024. "A test of loyalty," Theory and Decision, Springer, vol. 97(1), pages 109-137, August.
    5. Heinrich H. Nax & Ryan O. Murphy & Stefano Duca & Dirk Helbing, 2017. "Contribution-Based Grouping under Noise," Games, MDPI, vol. 8(4), pages 1-23, November.
    6. Nax, Heinrich H. & Murphy, Ryan O. & Helbing, Dirk, 2014. "Stability and welfare of 'merit-based' group-matching mechanisms in voluntary contribution game," LSE Research Online Documents on Economics 65444, London School of Economics and Political Science, LSE Library.
    7. Heinrich H. Nax & Stefano Balietti & Ryan O. Murphy & Dirk Helbing, 2018. "Adding noise to the institution: an experimental welfare investigation of the contribution-based grouping mechanism," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(2), pages 213-245, February.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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