The article provides a micro-behavioral model and an experimental design to understand the effect of heterogeneity in social identities on cooperation while accounting for endogenous sorting. Social identity is induced exogenously using the minimal group paradigm. The experiment manipulates sorting with three treatments: having subjects interact with both in- and outgroup members, giving them the choice to interact either with ingroup or outgroup members, and isolating the groups from the outset. Cooperation is measured by the Prisoner’s Dilemma Games at the dyadic level and by Public Goods Games at the tetradic level. The results show that heterogeneity hampers between-group cooperation at the dyadic level. In addition, endogenous sorting mitigates this negative effect of heterogeneity on cooperation. Heterogeneity hampers cooperation at the tetradic level most substantially if there is a commonly known negative history between groups.
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