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Organizational Coordination and Costly Communication with Boundedly Rational Agents

  • Dietrichson, Jens

    ()

    (Department of Economics, Lund University)

  • Jochem, Torsten

    ()

    (Faculty of Economics and Business, University of Amsterdam)

How does costly communication affect organizational coordination? This paper develops a model of costly communication based on the weakest-link game and boundedly rational agents. Solving for the stochastically stable states, we find that communication increases the possibilities for efficient coordination compared to a setting where agents cannot communicate. But as agents face a trade-off between lowering the strategic uncertainty for the group and the costs of communication, the least efficient state is still the unique stochastically stable one for many parameter values. Simulations show that this is not just a long run phenomena, the stochastically stable state is the most frequent outcome also in the short run. Making communication mandatory induces efficient coordination, whereas letting a team leader handle communication increases efficiency when the leader expects others to follow and has enough credibility. The results are broadly consistent with recent experimental evidence of communication in weakest-link games.

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File URL: http://project.nek.lu.se/publications/workpap/papers/WP14_2.pdf
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Paper provided by Lund University, Department of Economics in its series Working Papers with number 2014:2.

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Length: 38 pages
Date of creation: 03 Feb 2014
Date of revision:
Handle: RePEc:hhs:lunewp:2014_002
Contact details of provider: Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en

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