Coordination Problems and Norms in Heterogeneous Populations

We study coordination frictions, and the importance of contribution norms, in step-level public good games with large equilibrium sets and heterogeneous agents. We show that heterogeneity creates frictions on aggregate. An elicitation task and a questionnaire show that individuals hold, and expect others to hold, well defined yet conflicting normative views of fair contribution rules related to effciency, equality, and equity. Successful groups agree on, and then stick with, normatively appealing allocations with focal properties that can be derived from first principles. Moreover, normative viewpoints and expectations (as elicited ex-ante) predict group behavior, confirming the importance of normative arguments and expectations in complex coordination problems. ∗Stockholm School of Economics, e-mail: [email protected] †IZA and Columbia University, e-mail: [email protected] ‡CESifo, IZA, and Maastricht University, e-mail: [email protected]