Peer Discipline and the Strength of Organizations

Groups do not act as individuals as Olson and other have emphasized: incentives within groups matter. Here we study internal group discipline through a model of costly peer punishment. We investigate schemes that minimize the cost to a collusive group of enforcing particular actions, and use the model to determine how the strength of the group as measured, for example, by ability to raise funds to provide a public good depends on the size of the group, the size of the prize, and the heterogeneity of the group. We nd that voluntary provisions models do not scale properly, while the peer discipline model does. The peer discipline model predicts that for a xed size of an auctioned (rival) prize the strength of the group is single-peaked increasing when the group is small then declining. The strength of the group also declines with heterogeneity. When groups compete for transfers which one group may have to make in favor of another we nd that small groups have an advantage over larger ones. JEL Classi cation Numbers: C72 Noncooperative Games D7 Analysis of Collective Decision-Making D72 Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior