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Seminar
February 20, 2013
12:15 PM
Collins Conference Room
Martin Strobel (Department of Economics, Maastricht University)
"Efficient Coordination in Weakest Link Games"
Authors: Arno Riedl, Ingrid M.T. Rohde, and Martin Strobel
Abstract: Coordination problems resembling weakest-link games are ubiquitous in the economy and society. Since they possess Pareto ranked equilibria it is important to understand if and when agents are able to coordinate on the efficient equilibrium. Existing research on weakest-link games shows an overwhelming inability of people to coordinate on the efficient equilibrium, especially in larger groups. We show experimentally that freedom of neighborhood choice overcomes the problem and leads
to fully efficient coordination, irrespective of group size. This implies substantial welfare effects with achieved welfare being 40 to 60 percent higher in games with neighborhood choice than without neighborhood choice. We identify exclusion of low effort providers who in response start providing high effort as the simple but effective mechanism enforcing efficient coordination. Our results are widely applicable on the societal and organizational level, e.g. containment of diseases, fight against terrorism, co-authorship networks.
JEL: C72, C92, D02, D03, D85
Keywords: efficient coordination, weakest-link, minimum effort, neighborhood choice, experiment
Purpose: Research Collaboration
SFI Host: Jennifer Dunne
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