Clearing the Highest Hurdles: Intragroup Conflicts and Cooperation in Large Groups

Abstract

The literature pessimistically predicts that large groups will fail in pursuing their common interests and blame free-riders in general. However, not all players outside the coalition are free-riders. In order to avoid intragroup conflicts, leaders of coalitions may create a kind of bureaucracy and exclude some players as well. Therefore, from the outsiders’ viewpoint, there is an agency problem as their preferences will not be considered by insiders. This study explores the conflict between coalition insiders and outsiders in a theoretical model and using the Coase theorem seeks a middle ground on which both sides can compromise. It shows that by designing a mechanism for indirect cooperation insiders and outsiders can reach a Pareto superior win-win solution that is efficient, saves on organizational costs, partly overcomes free-riding, and avoids agency problems and the under-provision of collective goods. The key to success is to design cooperation mechanisms in different but complete and compatible forms. Finally, real-world examples are provided showing how large groups can resolve their group conflicts by defining cooperation on a ‘continuum of collective action’. JEL: D7; D2; C7