EFFICIENT LARGE‐SIZE COORDINATION VIA VOLUNTARY GROUP FORMATION: AN EXPERIMENT

Chun‐Lei Yang, Mao‐Long Xu, Juanjuan Meng and Fang‐Fang Tang

International Economic Review, 2017, vol. 58, issue 2, 651-668

Abstract: Efficient coordination in large groups is a fundamental issue in economic organizations. We consider the weak‐link game with the feature of economies of scale that is necessary for voluntary group growth, in a minimal setup with exit and merger options. We show that large groups with efficient outcomes prevail in most communities. Seed groups form that seem to set a norm of both maximal effort level and mutual trust that there will be no panic when seeing noisy dips. Initial doubters are eventually converted into norm abiders. A restart further speeds up the process of coordination success.

Date: 2017
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