I modify Fredrik Barth's approach, which sees ethnic group building as a signaling system, to place it within a framework that draws from collective action and costly signaling theories. From these perspectives, ethnic signaling, although representing a costly penalty to group members, is one effective form of communication that facilitates collective management of resources. I then identify three contexts in which the benefits of ethnic group building are likely to outweigh its signaling costs: in politically chaotic refuge and periphery zones; in the context of long-distance specialist trading groups; and within the territorial scope of failed states. I point to selected data from the Mughal and Aztec polities to illustrate how a combination of effective public goods management, in highly collective states, and the growth of highly integrated commercial economies will render ethnic group building superfluous.
Keywords: collective action; costly signaling; ethnicity.