Simultaneous inter- and intra-group conflicts

Economics

Further details

This paper models the trade-off between production and appropriation in the presence of simultaneous inter- and intra-group conflicts. The model exhibits a `group cohesion effect': if the contest between the groups becomes more decisive, or contractual incompleteness be- tween groups becomes more serious, the players devote fewer resources to the intra-group conflict. Moreover, there is also a `reversed group cohesion effect': if the intra-group contests become less decisive, or contractual incompleteness within groups becomes less serious, the players devote more resources to the inter-group contest. The model also sheds new light on normative questions. I derive exact conditions for when dividing individuals in more groups leads to more produc- tive and less appropriative activities. Further, I show that there is an optimal size of the organization which is determined by a trade-off between increasing returns to scale in production and increasing costs of appropriative activities.