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Observability and Overcoming Coordination Failure in Organizations. An Experimental Study

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  • Jordi Brandts
  • David J. Cooper

Abstract

Many organizations suffer poor performance because its members fail to coordinate on efficient patterns of behavior. In previous research, we have shown that financial incentives can be used to find a way out of such performance traps. Here we examine the sensitivity of this result to the ability of people to observe others' choices. 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 the employees of an experimental firm is a weak-link game. Treatments vary along two dimensions. First, subjects either start with low financial incentives for coordination, which typically leads to coordination failure, and then are switched to higher incentives or start with high incentives, which typically yield effective coordination, and are switched to low incentives. Second, as the key treatment variable, subjects either observe the effort levels chosen by all employees in their experimental firm (full feedback) or observe only the minimum effort (limited feedback). We find three primary results: (1) The use of full feedback improves the ability of organizations to overcome coordination failure, (2) The use of full feedback has no effect on the ability of successful organizations to avoid slipping into coordination failure, and (3) History-dependence is strengthened by the use of full feedback.

Suggested Citation

  • Jordi Brandts & David J. Cooper, 2004. "Observability and Overcoming Coordination Failure in Organizations. An Experimental Study," Working Papers 143, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:143
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    References listed on IDEAS

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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 234-248, March.
    7. Jordi Brandts & David J. Cooper, 2006. "A Change Would Do You Good .... An Experimental Study on How to Overcome Coordination Failure in Organizations," American Economic Review, American Economic Association, vol. 96(3), pages 669-693, June.
    8. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
    9. 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.
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    Cited by:

    1. Dietmar Fehr, 2011. "The Persistence of "Bad" Precedents and the Need for Communication: A Coordination Experiment," SFB 649 Discussion Papers SFB649DP2011-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    2. Timko, Krisztina, 2017. "Gender, Communication Styles, and Leader Effectiveness," MPRA Paper 77021, University Library of Munich, Germany.
    3. Masiliūnas, Aidas, 2017. "Overcoming coordination failure in a critical mass game: Strategic motives and action disclosure," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 214-251.
    4. Yoshio Kamijo & Hiroki Ozono & Kazumi Shimizu, 2016. "Overcoming coordination failure using a mechanism based on gradualism and endogeneity," Experimental Economics, Springer;Economic Science Association, vol. 19(1), pages 202-217, March.
    5. Timko, Krisztina, 2017. "Men and Women Are Equally Effective Leaders," MPRA Paper 77022, University Library of Munich, Germany.
    6. Kiss, Hubert Janos & Rodriguez-Lara, Ismael & Rosa-García, Alfonso, 2014. "Do social networks prevent or promote bank runs?," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 87-99.
    7. Stefania Bortolotti & Giovanna Devetag & Andreas Ortmann, 2009. "Exploring the effects of real effort in a weak-link experiment," CEEL Working Papers 0901, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    8. Simanti Banerjee & Frans P. de Vries & Nick Hanley & Daan P. van Soest, 2014. "The Impact of Information Provision on Agglomeration Bonus Performance: An Experimental Study on Local Networks," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(4), pages 1009-1029.
    9. Alekseev, Aleksandr & Charness, Gary & Gneezy, Uri, 2017. "Experimental methods: When and why contextual instructions are important," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 48-59.
    10. Alfonso Rosa García & Hubert Janos Kiss & Ismael Rodríguez Lara, 2009. "Do social networks prevent bank runs?," Working Papers. Serie AD 2009-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    11. Chong, Sophia & Guillen, Pablo, 2012. "The discreet charm of the collective contract," Working Papers 2012-03, University of Sydney, School of Economics.
    12. Cary Deck & Nikos Nikiforakis, 2012. "Perfect and imperfect real-time monitoring in a minimum-effort game," Experimental Economics, Springer;Economic Science Association, vol. 15(1), pages 71-88, March.
    13. Francesco Feri & Bernd Irlenbusch & Matthias Sutter, 2010. "Efficiency Gains from Team-Based Coordination—Large-Scale Experimental Evidence," American Economic Review, American Economic Association, vol. 100(4), pages 1892-1912, September.
    14. Banerjee, Simanti & Kwasnica, Anthony M. & Shortle, James S., 2012. "Agglomeration bonus in small and large local networks: A laboratory examination of spatial coordination," Ecological Economics, Elsevier, vol. 84(C), pages 142-152.
    15. Cason, Timothy N. & Sheremeta, Roman M. & Zhang, Jingjing, 2012. "Communication and efficiency in competitive coordination games," Games and Economic Behavior, Elsevier, vol. 76(1), pages 26-43.
    16. Kriss, Peter H. & Blume, Andreas & Weber, Roberto A., 2016. "Coordination with decentralized costly communication," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 225-241.
    17. Sam Asher & Lorenzo Casaburi & Plamen Nikolov & Maoliang Ye, 2010. "One step at a time: Does gradualism build coordination?," Framed Field Experiments 00188, The Field Experiments Website.
    18. Blaufus, Kay & Möhlmann, Axel, 2012. "Security returns and tax aversion bias: Behavioral responses to tax labels," arqus Discussion Papers in Quantitative Tax Research 133, arqus - Arbeitskreis Quantitative Steuerlehre.
    19. Corazzini, Luca & Cotton, Christopher & Valbonesi, Paola, 2015. "Donor coordination in project funding: Evidence from a threshold public goods experiment," Journal of Public Economics, Elsevier, vol. 128(C), pages 16-29.
    20. Jordi Brandts & David J. Cooper, 2006. "A Change Would Do You Good .... An Experimental Study on How to Overcome Coordination Failure in Organizations," American Economic Review, American Economic Association, vol. 96(3), pages 669-693, June.
    21. repec:ebl:ecbull:eb-17-00049 is not listed on IDEAS
    22. Banerjee, Simanti & Kwasnica, Anthony M & Shortle, James S, 2011. "Agglomeration Bonus in Local Networks: A laboratory examination of spatial coordination failure," Stirling Economics Discussion Papers 2011-18, University of Stirling, Division of Economics.
    23. Bortolotti, Stefania & Devetag, Giovanna & Ortmann, Andreas, 2016. "Group incentives or individual incentives? A real-effort weak-link experiment," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 60-73.
    24. Edward Cartwright & Joris Gillet & Mark Van Vugt, 2013. "Leadership By Example In The Weak-Link Game," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2028-2043, October.

    More about this item

    Keywords

    Incentives; Coordination; Observation; experiments; Organizations;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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