Corporate Downsizing to Rebuild Team Spirit: How Costly Voting Can Foster Cooperation

Antonio Cabrales and Antoni Calvó-Armengol

Journal of the European Economic Association, 2007, vol. 5, issue 5, 1016-1042

Abstract: We propose a new mechanism to achieve coordination through voting, for which we discuss a number of real-life applications. Among them, the mechanism provides for a new theory for downsizing in organizations. A crisis may lead to a decrease in the willingness to cooperate in an organization, and therefore to a bad equilibrium. A consensual downsizing episode may signal credibly that survivors are willing to cooperate, and thus, it may be optimal and efficiency-enhancing (for the individuals remaining in the organization), as the empirical evidence suggests. A variation of the same mechanism leads to "efficient" upsizing. (JEL: C70, D70, M50) (c) 2007 by the European Economic Association.

Date: 2007
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