Solving Coordination Failure with All-or-None Group-Level Incentives

37 Pages Posted: 11 May 2006 Last revised: 30 Apr 2009

See all articles by John Hamman

John Hamman

Carnegie Mellon University - Department of Social and Decision Sciences

Scott Rick

University of Michigan, Stephen M. Ross School of Business

Roberto A. Weber

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 1, 2006

Abstract

Coordinating activity among members is an important problem faced by organizations. When firms, or units within firms, are stuck in bad equilibria, managers may turn to the temporary use of simple incentives - flat punishments or rewards - in an attempt to transition the firm or unit to a more efficient equilibrium. We investigate the use of incentives in the context of the minimum-effort, or weak-link, coordination game. We allow groups to reach the inefficient equilibrium and then implement temporary, flat, all-or-none incentives to encourage coordination on more efficient equilibria. We vary whether the incentives are positive (rewards) or negative (penalties), whether they have substantial or nominal monetary value, and whether they are targeted to a specific outcome (the efficient equilibrium) or untargeted (and apply to more than one outcome). Overall, incentives of all kinds are effective at improving coordination while they are in place, and we find that substantial and targeted incentives are most effective. However, there is little long-term persistent benefit of incentives - once the incentives are removed, groups tend to return to the inefficient outcome.

Keywords: Coordination, Minimum Effort Game, Incentives, Experiments

JEL Classification: C72, C92

Suggested Citation

Hamman, John and Rick, Scott and Weber, Roberto A., Solving Coordination Failure with All-or-None Group-Level Incentives (May 1, 2006). Available at SSRN: https://ssrn.com/abstract=900383 or http://dx.doi.org/10.2139/ssrn.900383

John Hamman

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Scott Rick

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

HOME PAGE: http://webuser.bus.umich.edu/srick/

Roberto A. Weber (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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