Beiträge zur Jahrestagung des Vereins für Socialpolitik 2011: Die Ordnung der Weltwirtschaft: Lektionen aus der Krise - Session: Economic Analysis of Groups G5-V1
We analyze the interplay of group identity and inter-group conflict in a contest where each of two conflicting groups can develop either a group or an individualistic identity. Contest structures impact on the adoption of identities which themselves influence behavior in the contest. We show the following: If group sizes and contest technologies are similar, group identities emerge. This then results in a reduced well-being for all individuals. If one group has a large advantage in the contest, only this group will create a group identity and benefit on the expense of the other. Outgroup hostility favors asymmetric identities. Several applications of the findings are discussed.