Endogenous Group Formation via Unproductive Costs

Advertising cooperative phenotype through costly signals facilitates collective action

Around the world, people engage in practices that involve self-inflicted pain and apparently wasted resources. Researchers theorized that these practices help stabilize within-group cooperation by assorting individuals committed to collective action. While this proposition was previously studied using existing religious practices, we provide a controlled framework for an experimental investigation of various predictions derived from this theory. We recruited 372 university students in the Czech Republic who were randomly assigned into either a high-cost or low-cost condition and then chose to play a public goods game (PGG) either in a group that wastes money to signal commitment to high contributions in the game or to play in the group without such signals. We predicted that cooperators would assort in the high-cost revealed group and that, despite these costs, they would contribute more to the common pool and earn larger individual rewards over five iterations of PGG compared with the concealed group and participants in the low-cost condition. The results showed that the assortment of cooperators was more effective in the high-cost condition and translated into larger contributions of the remaining endowment to the common pool, but participants in the low-cost revealed group earned the most. We conclude that costly signals can serve as an imperfect assorting mechanism, but the size of the costs needs to be carefully balanced with potential benefits to be profitable.

ISLAM, INEQUALITY AND PRE-INDUSTRIAL COMPARATIVE DEVELOPMENT

This study explores the interaction between trade and geography in shaping the Islamic economic doctrine. We build a model where an unequal distribution of land quality in presence of trade opportunities conferred differential gains from trade across regions, fostering predatory behavior by groups residing in the poorly endowed territories. We show that in such an environment it was mutually beneficial to institute an economic system of income redistribution featuring income transfers in return for safe passage to conduct trade. A commitment problem, however, rendered a merely static redistribution scheme unsustainable. Islam developed a set of dynamic redistributive rules that were self-enforcing, in regions where arid lands dominated the landscape. While such principles fostered the expansion of trade within the Muslim world they limited the accumulation of wealth by the commercial elite, shaping the economic trajectory of Islamic lands in the pre-industrial era.