Voluntary formation of communities for the provision of public projects

In this paper we examine a group formation problem, where heterogeneous individuals partitioned themselves into communities, each choosing its own public project from the given space of feasible projects. The model is that of "horizontal product differentiation" where individuals display distinct preferences over the policy space. We consider the notion of "efficient" configuration that minimizes the total project-related costs and aggregate personalized costs of all individuals, and "sustainable" configurations, those are immune against breakaways by subgroups of individuals. Our main result is that, with a unidimensional project space and single-peaked personalized costs, every efficient partition is sustainable.