Group Formation, In-group Bias and the Cost of Cheating

Moti Michaeli

No MWP2015/04, Economics Working Papers from European University Institute

Abstract: Group formation and in-group bias - preferential treatment for insiders - are widely observed social phenomena. This paper demonstrates how they arise naturally when people incur a psychological cost as the result of defecting when facing cooperators, when this cost is increasing and concave in the number of such defections. If some group members are asocial, i.e., insusceptible to that cost, then, under incomplete information, free-riding and cooperation can coexist within groups. Signaling of one's type can enable groups to screen out free-riders, but signalling is costly, and its availability may decrease the welfare of all the individuals in society.

Keywords: In-Group Bias; Group Formation; Costly Signalling; Prisoner's Dilemma Game (search for similar items in EconPapers)
JEL-codes: C72 D03 D64 D7 D82 Z13 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cdm, nep-gth and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:mwp2015/04

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