Comparing Subsidies to Solve Coordination Failure

Roweno J.R.K. Heijmans () and Sigrid Suetens
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Roweno J.R.K. Heijmans: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/roweno-johannes-ryan-king-heijmans/

No 2025/9, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

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

Keywords: Coordination; policy design; divide-and-conquer; risk dominance; experiment; contracting with externalities (search for similar items in EconPapers)
JEL-codes: C70 C90 D04 H20 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2025-03-07
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