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Endogenous Group Formation via Unproductive Costs.

Jason A Aimone1, Laurence R Iannaccone2, Michael D Makowsky3

  • 1Virginia Tech Carilion Research Institute & Baylor University.

The Review of Economic Studies
|May 9, 2014
PubMed
Summary

Voluntary sacrifice in groups, even in lab settings, enhances cooperation. This mechanism screens free-riders and boosts member welfare by making costly choices attractive to cooperators.

Keywords:
C92Club goodsD71Endogenous group formationFree ridingH41Laboratory experimentReligionSacrificeSelf-selectionVoluntary contribution mechanismZ12

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Area of Science:

  • Behavioral Economics
  • Social Psychology
  • Game Theory

Background:

  • Cooperation is crucial for group success across diverse human societies.
  • Sacrifice is often cited as a driver of cooperation, but its mechanisms are debated.
  • Existing research often links sacrifice to specific group identities or ideologies.

Purpose of the Study:

  • To investigate the role of voluntary sacrifice in promoting cooperation in a controlled laboratory setting.
  • To determine if sacrifice can enhance group outcomes independently of ideology or identity.
  • To explore the behavioral and economic consequences of costly group participation.

Main Methods:

  • Subjects participated in a modified Voluntary Contribution Mechanism (VCM) game.
  • Participants could voluntarily join groups offering reduced rates of return on private investment.
  • The study analyzed sorting, substitution effects, and impact on group production and welfare.

Main Results:

  • Voluntary costly participation led to endogenous sorting, with free-riders avoiding reduced-return groups.
  • Reduced private productivity incentivized increased club involvement, demonstrating a substitution effect.
  • The sacrifice mechanism effectively screened free-riders and attracted conditional cooperators.

Conclusions:

  • Seemingly unproductive costs (sacrifice) can serve as a simple and effective mechanism for enhancing group cooperation.
  • This sacrifice mechanism is particularly valuable in situations where monitoring and traditional enforcement methods are difficult.
  • The findings demonstrate that sacrifice can increase club production and member welfare, even in the absence of strong group identity or ideology.