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Efficient Coordination in Weakest-Link Games

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Article
Author/s: 
Arno Riedl, Ingrid M.T. Rohde and Martin Strobel
The Review of Economic Studies
Year: 
2015
Coordination problems resembling weakest-link games with multiple Pareto ranked equilibria are ubiquitous in the economy and society. This makes it important to understand if and when agents are able to coordinate efficiently. Existing research on weakest-link games shows an overwhelming inability of people to coordinate on efficient equilibria, especially in larger groups. We show experimentally that freedom of neighborhood choice overcomes the problem and leads to fully efficient coordination. This implies substantial welfare effects with achieved welfare being about 50 percent higher in games with neighborhood choice than without it. We identify exclusion of low effort providers who in response start providing high effort as the simple but effective mechanism enforcing efficient coordination. A variety of other treatments show that the efficiency result as well as the identified mechanism are robust to changes in the information condition, payoff specification, and a substantial increase in group size. Moreover, we find that neighborhood choice boosts efficiency even when exclusion does not materially affect the excluded agent. Our results are widely applicable on the societal and organizational level, e.g. containment of diseases, fight against terrorism and co-authorship networks.
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