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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

Many organizations suffer poor performance because individuals within the organization fail to coordinate on efficient patterns of behavior. Using controlled laboratory experiments, we study how financial incentives can be used to find a way out of such performance traps. Our experiments are set in a corporate environment where subjects' payoffs depend on coordinating at high effort levels; the underlying game being played repeatedly by employees is a weak-link game. In an initial phase, the benefits of coordination are low relative to the cost of increased effort. Play in this initial phase typically converges to an inefficient outcome with employees failing to coordinate at high effort levels. The experimental design then explores the effects of varying the financial incentives to coordinate at a higher effort level. We find that an increase in the benefits of coordination leads to improved coordination, but, surprisingly, large increases have no more impact than small increases. Once subj

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 606.04.

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Length: 54
Date of creation: 02 Mar 2004
Date of revision:
Handle: RePEc:aub:autbar:606.04

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Keywords: Incentives; Coordination; Experiments; Organizations;

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