The collective action problem: Within-group cooperation and between-group competition in a repeated rent-seeking game

This paper analyzes the ability of group members to cooperate in rent-seeking activities in a context of between-group competition. For this purpose, we develop an infinitely repeated rent-seeking game between two groups of different size. We first investigate Nash reversion strategies to support cooperative behavior in both groups, before analyzing double-edge trigger strategies which support cooperation in one group only. These last strategies have the property that cheating on the agreement in the cooperative group is followed by non-cooperation in this group and cooperation in the rival group. The main conclusion is that the set of parameters for which cooperation can be sustained within the larger group as a subgame perfect outcome is as large as that for which cooperation can be sustained in the smaller group. Hence, in contrast to Olsonʼs (1965) celebrated thesis, but in accordance with many informal and formal observations, larger groups can be as effective as smaller groups in furthering their interests.