ABSTRACT We revisit an existing framework of endogenous institution formation for public good provision, incorporating heterogeneous players to address the question, “Who joins an institution that sanctions only its members to provide a public good?” We analyze two models with different sources of heterogeneity. Considering players with heterogeneous wealth levels and valuations of the public good, our first model suggests multiple equilibria at which institution formation is successful. Formation requires each member's valuation to exceed a threshold linked to her contribution ratio. Correlations between valuations and wealth levels influence the equilibrium set's size. Our second model examines sequential decision‐making, uncovering a first‐mover advantage in which non‐members free‐ride on the institution as a second‐order public good.
Min et al. (Thu,) studied this question.