The effect of sharing rules on group competition

We consider embedding independent within-group conflicts for the provision of public goods in a between-group competition for an exogenously determined prize as a structural mechanism for reducing free riding. We model this situation by a multi-level collective action game in which the group<92>s probability of wining the prize is proportional to its contribution, and the profit sharing rule that determines how to divide the prize among members of the winning group is either egalitarian or proportional to the individual contributions. Under appropriate parameterization of the payoff structure, zero contribution by individual members is no longer the equilibrium solution, and equilibrium contributions are substantially higher when the profit sharing rule is proportional rather than egalitarian. Our experimental results support the equilibrium predictions. A simple reinforcement- learning model accounts for the dynamics of play on the aggregate but not individual level.