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A Change Would Do You Good .... An Experimental Study on How to Overcome Coordination Failure in Organizations

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  • Jordi Brandts
  • David J. Cooper

Abstract

We study how financial incentives can be used to overcome a history of coordination failure using controlled laboratory experiments. Subjects' payoffs depend on coordinating at high effort levels. In an initial phase, the benefits of coordination are low, and play typically converges to an inefficient outcome. We then explore varying financial incentives to coordinate at a higher effort level. An increase in the benefits of coordination leads to improved coordination, but large increases have no more impact than small increases. Once subjects have coordinated on a higher effort level, reductions in the incentives to coordinate have little effect on behavior. (JEL C92, D23, J31, L23, M52)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.96.3.669
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 3 (June)
Pages: 669-693

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:3:p:669-693

Note: DOI: 10.1257/aer.96.3.669
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  1. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1991. "Strategic Uncertainty, Equilibrium Selection, and Coordination Failure in Average Opinion Games," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 885-910, August.
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  6. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, vol. 80(1), pages 234-48, March.
  7. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
  8. Knez, Marc & Simester, Duncan, 2001. "Firm-Wide Incentives and Mutual Monitoring at Continental Airlines," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 743-72, October.
  9. Camerer, Colin F. & Ho, Teck-Hua & Chong, Juin-Kuan, 2002. "Sophisticated Experience-Weighted Attraction Learning and Strategic Teaching in Repeated Games," Journal of Economic Theory, Elsevier, vol. 104(1), pages 137-188, May.
  10. Cooper, David J. & Kagel, John H., 2003. "The impact of meaningful context on strategic play in signaling games," Journal of Economic Behavior & Organization, Elsevier, vol. 50(3), pages 311-337, March.
  11. Jacob K. Goeree & Charles A. Holt, 2000. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," Virginia Economics Online Papers 333, University of Virginia, Department of Economics.
  12. Jordi Brandts & David J. Cooper, 2004. "Observability and Overcoming Coordination Failure in Organizations," UFAE and IAE Working Papers 630.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  13. Battalio, Raymond & Samuelson, Larry & Van Huyck, John, 2001. "Optimization Incentives and Coordination Failure in Laboratory Stag Hunt Games," Econometrica, Econometric Society, vol. 69(3), pages 749-64, May.
  14. Jordi Brandts & David J. Cooper, 2004. "Observability and Overcoming Coordination Failure in Organizations. An Experimental Study," Working Papers 143, Barcelona Graduate School of Economics.
  15. Timothy C. Salmon, 2001. "An Evaluation of Econometric Models of Adaptive Learning," Econometrica, Econometric Society, vol. 69(6), pages 1597-1628, November.
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  18. David J. Cooper & John H. Kagel, 2005. "Are Two Heads Better Than One? Team versus Individual Play in Signaling Games," American Economic Review, American Economic Association, vol. 95(3), pages 477-509, June.
  19. David Cooper & John Kagel, 2008. "Learning and transfer in signaling games," Economic Theory, Springer, vol. 34(3), pages 415-439, March.
  20. Roberto A. Weber, 2006. "Managing Growth to Achieve Efficient Coordination in Large Groups," American Economic Review, American Economic Association, vol. 96(1), pages 114-126, March.
  21. Knez, Marc & Camerer, Colin, 2000. "Increasing Cooperation in Prisoner's Dilemmas by Establishing a Precedent of Efficiency in Coordination Games," Organizational Behavior and Human Decision Processes, Elsevier, vol. 82(2), pages 194-216, July.
  22. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
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