Efficient Large-Size Coordination via Voluntary Group Formation: An Experiment

Abstract

Efficient coordination in large groups is a fundamental issue in economic organizations. We consider the weak-link game with the feature of economies of scale that is necessary for voluntary group growth, in a minimal setup with exit and merger options that allows for bi-directional changes in group size. We show that large groups with efficient outcomes prevail in most communities. Seed groups form that seem to set a norm of both maximal effort level and mutual trust that there will be no panic when seeing noisy dips. Initial doubters are eventually converted into norm abiders. A restart further speeds up the process of coordination success.

Keywords: Efficient coordination, large group, weak-link game, economies of scale, voluntary exit, merger

JEL Classification: C71, C92