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Observability and overcoming coordination failure in organizations: An experimental study

Published online by Cambridge University Press:  14 March 2025

Jordi Brandts  and
David J. Cooper
Jordi Brandts*
Affiliation:
Institut d'Anàlisi Econòmica (CSIC), Campus UAB, 08193 Barcelona (Bellaterra), Spain
David J. Cooper*
Affiliation:
Department of Economics, Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, OH 44106-7206, USA
*
e-mail: [email protected]
e-mail: [email protected]
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Abstract

Motivated by problems of coordination failure in organizations, we examine how overcoming coordination failure and maintaining coordination depend on the ability of individuals to observe others’ choices. Subjects’ payoffs depend on coordinating at high effort levels in a weak-link game. Treatments vary along two dimensions. First, subjects either start with low financial incentives for coordination, which typically leads to coordination failure, and then are switched to higher incentives or start with high incentives, which usually yield effective coordination, and are switched to low incentives. Second, as the key treatment variable, subjects either observe the effort levels chosen by all individuals in their experimental group (full feedback) or observe only the minimum effort (limited feedback). We find three primary results: (1) When starting from coordination failure the use of full feedback improves subjects’ ability to overcome coordination failure, (2) When starting with good coordination the use of full feedback has no effect on subjects’ ability to avoid slipping into coordination failure, and (3) History-dependence, defined as dependence of current effort levels on past incentives, is strengthened by the use of full feedback.

Keywords

IncentivesCoordinationObservationExperimentsOrganizations

JEL classification

D23: Organizational Behavior • Transaction Costs • Property Rights J31: Wage Level and Structure • Wage Differentials M52: Compensation and Compensation Methods and Their Effects L23: Organization of Production C92: Laboratory, Group Behavior
Type
Research Article
Information
Experimental Economics , Volume 9 , Issue 4 , December 2006 , pp. 407 - 423
Copyright
Copyright © 2006 Economic Science Association

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Footnotes

Electronic Supplementary Material Supplementary material is available in the online version of this article at http://dx.doi.org/10.1007/s10683-006-7056-5.

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