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Inefficient Group Organization as Optimal Adaption to Dominant Environments

Martin Kolmar and Andreas Wagener

No 3157, CESifo Working Paper Series from CESifo

Abstract: Contests between groups are plagued by intra-group externalities (freeriding). Yet, costless incentive schemes that entirely avoid free-riding within a group might not be desirable, neither individually nor socially. In contests among two groups, a relatively weak (i.e., small or unproductive) group will optimally not implement them because they compound strength differences between groups. If both groups rein in their intra-group externalities, they are both worse off, compared to a situation with free-riding, if they are relatively similar. If they are sufficiently heterogenous, the weak group loses at the expense of the relatively strong group.

Keywords: conflict; incentives; group-size paradox (search for similar items in EconPapers)
JEL-codes: D72 D74 N40 Z13 (search for similar items in EconPapers)
Date: 2010
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