Membership in citizen groups

Article history: Received 27 November 2007 Available online 8 November 2008 JEL classification: C73 D71 We analyze the coordination problem of agents deciding to join a group that uses membership revenues to provide a discrete public good and excludable benefits. The public good and the benefits are jointly produced, so that benefits are valued only if the group succeeds in providing the public good. With asymmetric information about the cost of provision, the static membership game admits a unique equilibrium and we characterize the optimal membership fee. We show that heterogeneity in valuations for the excludable benefits is always detrimental to the group. However, in a dynamic contest in which heterogeneity arises endogenously (returning members receive additional seniority benefits at the expense of junior members), we show that, in the ex-ante optimal contract, offering seniority benefits is beneficial for the group, despite the heterogeneity in valuations created. © 2008 Elsevier Inc. All rights reserved.