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Efficient Coordination in Weakest-Link Games

Arno Riedl, Ingrid Rohde and Martin Strobel

Review of Economic Studies, 2016, vol. 83, issue 2, 737-767

Abstract: Coordination problems resembling weakest-link games with multiple Pareto ranked equilibria are ubiquitous in the economy and society. This makes it important to understand if and when agents are able to coordinate efficiently. Existing research on weakest-link games shows an overwhelming inability of people to coordinate on efficient equilibria, especially in larger groups. We show experimentally that freedom of neighbourhood choice overcomes the problem and leads to fully efficient coordination. This implies substantial welfare effects with achieved welfare being about 50% higher in games with neighbourhood choice than without it. We identify exclusion of low effort providers who in response start providing high effort as the simple but effective mechanism enforcing efficient coordination. A variety of other treatments show that the efficiency result as well as the identified mechanism are robust to changes in the information condition, payoff specification, and a substantial increase in group size. Moreover, we find that neighbourhood choice boosts efficiency even when exclusion does not materially affect the excluded agent. Our results are widely applicable on the societal and organizational level, e.g. containment of diseases, fight against terrorism, and co-authorship networks.

Date: 2016
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Related works:
Working Paper: Efficient Coordination in Weakest-Link Games (2011) Downloads
Working Paper: Efficient Coordination in Weakest-Link Games (2011) Downloads
Working Paper: Efficient Coordination in Weakest-Link Games (2011) Downloads
Working Paper: Efficient Coordination in Weakest-Link Games (2011) Downloads
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