Endogenous Group Formation ∗ T.K. Ahn † Florida State University R. Mark Isaac ‡ Florida State University Timothy C. Salmon § Florida State University February 2006 Abstract While the rules governing the formation of groups engaging in collective action may have significant impact on group size and behavior of members, most experiments on public goods have been conducted with the subjects in exogenously fixed groups or of fixed sizes. We study endogenous formation of groups in a public-goods provision game by allowing subjects to change groups under three sets of rules: free entry/exit, restricted entry with free exit, and free entry with restricted exit. We find that the rules governing entry and exit do have a significant impact on individual behavior and group-level outcomes. JEL Codes: C92, H41, D85 Key Words: Public Goods, Entry and Exit Rules, Group Formation, Group Size. “[T]he movement in and out of the group must no longer be ignored” — Mancur Olson, Logic of Collective Action, p. 36. 1 Introduction Groups that engage in collective action use a variety of rules that govern how each group is formed. Olson (1971) argues that the nature of how groups form for the purpose of engaging in collective ∗ The authors would like to thank the National Science Foundation, the Florida State University and the FSU Foundation as well as John Scholz for research support in funding these experiments. We owe a substantial debt of gratitude to Justin Esarey for programming the experiments. We also thank various participants in seminars or conference presentations at George Mason University, University of Central Florida, Indiana University - Bloomington, IUPUI, University of California - Davis, The New and Alternative Directions for Learning Workshop hosted at Carnegie Mellon University, The Southern Economics Association Conference, SAET conference in Vigo and the ESA conference in Montreal who provided many helpful comments that improved our experimental design and analysis of data. † Department of Political Science, Florida State University, Tallahassee, FL, 32306-2230, tahn@fsu.edu. Phone: 850-644-4540 Fax: 850-644-1367. ‡ Department of Economics, Florida State University, Tallahassee, FL, 32306-2180, misaac@mailer.fsu.edu. Phone: 850-644-7081 Fax: 850-644-4535. § Department of Economics, Florida State University, Tallahassee, FL, 32306-2180, tsalmon@fsu.edu. Phone: 850- 644-7207 Fax: 850-644-4535. 1