Crowding In, Crowding Out, The Janus Face Role of Group Diversity in Collective Action

Substantial evidence suggests that group diversity can generate a multiplier effect that significantly affects the public good produced in collective action. In this paper, we examine how such a multiplier effect impacts group formation or the matching of diverse agents. Our model shows that when group diversity or financial rewards to group diversity are low, increasing rewards to diversity can crowd-out individual incentives to cooperate and choose a socially superior investment strategy. The higher diversity rewards essentially create a higher implicit tax or requisite implicit compensations to sustain the cooperative voluntary production of the public good. For very diverse groups, by contrast, we find that greater diversity rewards can both increase individual contributions to the public good initiative (ie. exerts a direct effect on individual contribution behavior), and lower individual incentives to deviate from their cooperative strategies (ie. exerts an indirect effect on the stability of the collective action). These findings have concrete implications for the policy design of effective diversity rewards and catalysts of collective action. We illustrate our model and its key insights with a wide range of examples: the case of an urban regeneration project, of funding strategies of donors such as the EU, and of peace settlements in inter- and intra-state wars.