Many situations involving collective action problems occur in groups of individuals that have formed through a process of voluntary association. There are a wide variety of examples from lawyers forming partnerships to communities forming associations for education, neighborhood improvement, and crime control. Similarly, individuals sometimes will rely upon the support of voluntary groups when faced with losses from fire, disease or weather catastrophes. Because of the importance of collective action problems, economists and political scientists have extensively studied the behavior of individuals in these settings. However, most prior studies have taken the existence and size of the groups as a given and have ignored the dynamic manner in which groups form and evolve.
In this project we investigate the behavior of individuals in public goods and risk sharing environments when group formation is endogenous. We ask questions such as the following: "How do different rules for joining and leaving a group affect individuals' ability to solve various collective action problems? Can individuals learn to form groups of efficient size? Are some rules of group formation more conducive to socially efficient behavior?" Specifically, in the first part of our project we study three types of group formation rules in public goods provision groups: free entry and exit, restricted entry with free exit, and free entry with restricted exit. The second part of this project will extend the analysis to risk-sharing groups. Our research methodology involves a combination of economics experiments and theory development aimed at the complex relationship between group formation and behavior once a group has been formed. The results of the study will be valuable in understanding how the rules organizations use to regulate their membership hinder or enhance their ability to achieve their goals.
