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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 subjects have coordinated on a higher effort level, reductions in the financial incentives to coordinate have little effect on behavior. Hence, a "shock therapy" of temporary increases in incentives to coordinate can lead to permanent improvements in an organization's performance.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 115.

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Date of creation: Mar 2004
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Handle: RePEc:bge:wpaper:115

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Keywords: Incentives; Coordination; Experiments; Organizations;

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  16. Jordi Brandts & David J. Cooper, 2004. "Observability and Overcoming Coordination Failure in Organizations. An Experimental Study," Working Papers 143, Barcelona Graduate School of Economics.
  17. Camerer, Colin F. & Knez, Marc & Weber, Roberto A., 1996. "Timing and Virtual Observability in Ultimatum Bargaining and Weak Link Coordination Games," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 970, California Institute of Technology, Division of the Humanities and Social Sciences.
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