Comparing Subsidies to Solve Coordination Failure

Roweno Heijmans and Sigrid Suetens
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Sigrid Suetens: University of Groningen

No 2025004-EEF, Research Report from University of Groningen, FEB Research Institute (FEBRI)

Abstract: We use experiments to systematically test the performance of subsidies aimed atinducing efficient coordination in a coordination game. We consider two classesof policies: those based on divide-and-conquer (i.e. iterated dominance) and thosemaking the efficient Nash equilibrium of the game risk dominant. Cost-efficientpolicies from both classes are equally expensive but differ in the distribution ofsubsidies among agents. Our results show that risk dominance subsidies increasecoordination more effectively or at a lower cost than divide-and-conquer subsidies.

Date: 2025
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