Starting small toward voluntary formation of efficient large groups in public goods provision

Abstract

We test a mechanism whereby groups are formed voluntarily, through the use of voting. These groups play a public-goods game, where efficiency increases with group size (up to a limit, in one treatment). It is feasible to exclude group members, to exit one's group, or to form larger groups through mergers involving the consent of both merging groups. We find a great degree of success for this mechanism, as the average contribution rate is very high. The driving force appears to be the economies of scale combined with the awareness that bad behavior will result in exclusion or no admission. However, an important additional component is that it is possible for previous outsiders to later redeem themselves by becoming high contributors, typically in efficient large groups.