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

65 Pages Posted: 20 May 2018

See all articles by Farzana Afridi

Farzana Afridi

Indian Statistical Institute, Delhi

Amrita Dhillon

University of Warwick - Department of Economics

Sherry Xin Li

University of Texas at Dallas

Swati Sharma

Indian Statistical Institute, Kolkata - Economic Research Unit

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.

Keywords: caste-based networks, social incentives, financial incentives, minimum effort game, coordination, trust

JEL Classification: C93, D20, D22, D24, J33

Suggested Citation

Afridi, Farzana and Dhillon, Amrita and Li, Sherry Xin and Sharma, Swati, Using Social Connections and Financial Incentives to Solve Coordination Failure: A Quasi-Field Experiment in India's Manufacturing Sector. IZA Discussion Paper No. 11521. Available at SSRN: https://ssrn.com/abstract=3181114

Farzana Afridi (Contact Author)

Indian Statistical Institute, Delhi ( email )

7, S.J.S. Sansanwal Marg
New Delhi
India

Amrita Dhillon

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 1 20 352 3032 (Phone)

Sherry Xin Li

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Swati Sharma

Indian Statistical Institute, Kolkata - Economic Research Unit

205 B.T. Road Indian Statistical Institute
Economic Research Unit
Kolkata, WA
India

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