This paper models the evolution of organizations that allow free entry and exit of members, such as cities and trade unions. In each period, current members choose a policy for the organization. Policy changes attract newcomers and drive away dissatisfied members, altering the set of future policymakers. The resulting feedback effects take the organization down a “slippery slope” that converges to a myopically stable policy, even if the agents are forward‐looking, but convergence becomes slower the more patient they are. The model yields a tractable characterization of the steady state and the transition dynamics. The analysis is also extended to situations in which the organization can exclude members, such as enfranchisement and immigration.

Abstract We study policy experimentation in organizations with endogenous membership. An organization decides when to stop a policy experiment based on its results. As information arrives, agents update their beliefs, and enter or leave the organization based on their expected flow payoffs. Unsuccessful experiments make all agents more pessimistic, but also drive out conservative members. We identify sufficient conditions under which the latter effect dominates, leading to excessive experimentation. In fact, the organization may experiment forever in the face of mounting negative evidence. Ex post heterogeneous payoffs exacerbate the problem, as optimists can join forces with guaranteed winners. Control by shareholders who own all future payoffs, however, can have a corrective effect. Our results contrast with models of collective experimentation with fixed membership, in which under-experimentation is the typical outcome.