A Road to Efficiency through Communication and Commitment

Abstract

We experimentally examine the efficacy of a novel pre-play institution introduced by Calcagno et al. (2014) in a well-known coordination game---the minimum-effort game---in which coordination failures are robust and persistent. This new institution allows agents to communicate while incrementally committing to their words, leading to a distinct theoretical prediction: the efficient outcome is uniquely selected in the extended coordination game. Commitment-enhanced communication significantly increases subjects' payoffs and achieves efficiency levels higher than non-binding communication. We identify the key ingredients of the institution that are central to achieving such gains.

Keywords: Revision games, minimum-effort game, continuous-time experiment, coordination.

JEL Classification: C73, C92, P41