Interacting Collective Action Problems
Abstract: We consider a setting where groups of agents interact, any group member’s action inducing an externality in the same group, and aggregate action in one group induces an externality in other groups. The interplay between in-group and out-group interactions is shown to affect the comparison between the decentralized and the cooperative outcomes, and also the effect of the fundamentals on individual decisions and welfare, compared to the case where there is no in-group or out-group interaction. Moreover, group characteristics greatly influence the capacity of group-level cooperation to alleviate the inefficiency problems driven by decentralization. Finally, we identify cases where inter-group relocation policies result in efficiency gains, and highlight how this crucially depends on the existence and nature of in-group and out-group interactions. All results stress the importance to acknowledge interactions between potential collective action problems.
