Is a Group that Does Not Produce a Group Good Really Unproductive

Abstract

Why do people form social groups that do not produce a kind of group goods (public goods for the members only) nor directly increase the productivities of the members as firms or interest groups do? This study rationalizes such behaviors in order to gain more precise signals of the potential partner types in a transaction. Indeed, signal improving groups are individually rational to join for those with signals above a threshold level. Also, the groups are socially desirable in that they increase the chances of more profitable transactions.