Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 09/2005: The Fear of Exclusion: Individual Effort when Group Formation is Endogenous

Kjell Arne Brekke (), Karine Nyborg () and Mari Rege ()
Additional contact information
Kjell Arne Brekke: Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, N-0349 Oslo, Norway
Karine Nyborg: Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, N-0349 Oslo, Norway
Mari Rege: Department of Economics, Case Western Reserve University, Postal: 11119, Bellflower Road, Cleveland, Ohio 44106, USA

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 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 principalagent analysis.

JEL-codes: C72; D11; D23; L24; Z13

23 pages, April 21, 2005

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Published as
Kjell Arne Brekke, Karine Nyborg and Mari Rege, (2007), 'The Fear of Exclusion: Individual Effort when Group Formation is Endogenous', Scandinavian Journal of Economics, vol 109, no 3, pages 531-550

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