Abstract:

We consider a situation in which a public good is repeatedly provided
and shared within the members of each free exit organization.
Organizations do not have enough power: members can punish a freerider
only by dismissing him/her or adjusting their own contribution level of public goods.
In this situation, there is no equilibrium such that everyone follows
the rule to cooperate from the first period. Nevertheless, as in the
two-person Voluntarily Separable Repeated Prisoner's Dilemma, it is
possible to have a partial cooperation using the trust-building strategy:
cooperation starts after initial periods of mutual defection during the
trust-building phase.
We examine whether the organizations should dissolve or continue
with vacancy, when the number of members decreases from the maximum
(and optimal) size. There is a trade-off. Although continuing
with a vacancy can save the cost of building the trust again in the
new organization, it results in a smaller pie. Moreover, the minimum
length of trust-building period is longer without dissolution. Under
sufficiently large discount factor, equilibrium with dissolution is more
efficient than that of continuing with vacancy.
Keywords: public goods, international public goods, club goods, voluntarily
separable repeated games

JEL classifications: H 41, C 73