Journal of Public Economic Theory, Volume 19, Issue 2, pp. 377-408, April 2017
I consider a society with heterogeneous individuals who can form organizations for the production of a differentiated public good. A decentralized arrangement of organizations is said to be split-up stable whenever there is no majority to split any of the organizations. Compared to the social optimum, decentralization yields too few organizations if they provide broad services and potentially too many if they are highly specialized. Conclusions are broadly similar in the presence of an outside opportunity where only some individuals join organizations.