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Solving coordination failure with “all-or-none” group-level incentives

Published online by Cambridge University Press:  14 March 2025

John Hamman ,
Scott Rick  and
Roberto A. Weber
John Hamman
Affiliation:
Department of Social and Decision Sciences, Carnegie Mellon University, Pittsburgh, PA 15213, USA
Scott Rick
Affiliation:
The Wharton School, University of Pennsylvania, Philadelphia, PA 19104, USA
Roberto A. Weber*
Affiliation:
Department of Social and Decision Sciences, Carnegie Mellon University, Pittsburgh, PA 15213, USA
*
e-mail: [email protected]
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Abstract

Coordinating activity among members is an important problem faced by organizations. When firms, or units within firms, are stuck in bad equilibria, managers may turn to the temporary use of simple incentives—flat punishments or rewards—in an attempt to transition the firm or unit to a more efficient equilibrium. We investigate the use of incentives in the context of the “minimum-effort,” or “weak-link,” coordination game. We allow groups to reach the inefficient equilibrium and then implement temporary, flat, “all-or-none” incentives to encourage coordination on more efficient equilibria. We vary whether incentives are positive (rewards) or negative (penalties), whether they have substantial or nominal monetary value, and whether they are targeted to a specific outcome (the efficient equilibrium) or untargeted (apply to more than one outcome). Overall, incentives of all kinds are effective at improving coordination while they are in place, but there is little long-term persistent benefit of incentives—once incentives are removed, groups tend to return to the inefficient outcome. We find some differences between different kinds of incentives. Finally, we contrast our results to other recent work demonstrating greater long-term effectiveness of temporary incentives.

Keywords

CoordinationIncentivesOrganizationsExperiments

JEL classification

D29: Other C92: Laboratory, Group Behavior C72: Noncooperative Games
Type
Research Article
Information
Experimental Economics , Volume 10 , Issue 3: Special issue of Experimental Economics in honor of Raymond C. Battalio: Coordination Games , September 2007 , pp. 285 - 303
Copyright
Copyright © 2007 Economic Science Association

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