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Using Social Connections and Financial Incentives to Solve Coordination Failure: A Quasi-Field Experiment in India's Manufacturing Sector

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Listed:
  • Afridi, Farzana

    () (Indian Statistical Institute)

  • Dhillon, Amrita

    () (King's College London)

  • Li, Sherry Xin

    () (University of Texas at Dallas)

  • Sharma, Swati

    () (Indian Statistical Institute)

Abstract

Production processes are often organised in teams, yet there is limited evidence on whether and how social connections and financial incentives affect productivity in tasks that require coordination among workers. We simulate assembly line production in a lab-in-the-field experiment in which workers exert real effort in a minimum-effort game in teams whose members are either socially connected or unconnected and are paid according to the group output. We find that group output increases by 15% and wasted individual output is lower by 30% when workers are socially connected with their co-workers. Unlike the findings of existing research, increasing the power of group-based financial incentives does not reduce the positive effect of social connections. Our results are driven by men whose average productivity is significantly lower than that of women. These findings can be explained by pro-social behavior of workers in socially connected teams.

Suggested Citation

  • Afridi, Farzana & Dhillon, Amrita & Li, Sherry Xin & Sharma, Swati, 2018. "Using Social Connections and Financial Incentives to Solve Coordination Failure: A Quasi-Field Experiment in India's Manufacturing Sector," IZA Discussion Papers 11521, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11521
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    References listed on IDEAS

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    1. Afridi, Farzana & Li, Sherry Xin & Ren, Yufei, 2015. "Social identity and inequality: The impact of China's hukou system," Journal of Public Economics, Elsevier, vol. 123(C), pages 17-29.
    2. Lorenz Goette & David Huffman & Stephan Meier, 2006. "The Impact of Group Membership on Cooperation and Norm Enforcement: Evidence Using Random Assignment to Real Social Groups," American Economic Review, American Economic Association, vol. 96(2), pages 212-216, May.
    3. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2009. "Social Connections and Incentives in the Workplace: Evidence From Personnel Data," Econometrica, Econometric Society, vol. 77(4), pages 1047-1094, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    caste-based networks; social incentives; financial incentives; minimum effort game; coordination; trust;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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