Managing Growth to Achieve Efficient Coordination in Large Groups: Theory and Experimental Evidence
2005-12-28T00:00:00Z (GMT) by
Several previous experiments using the minimum effort (weak link) coordination game reveal a striking regularity – large groups never coordinate tacitly on the efficient equilibrium. Given the frequency with which large real-world groups, such as firms, face similarly difficult coordination problems, this poses an important question for economics and organization: Why do we observe large successfully coordinated groups in the real world when they are so difficult to create in the laboratory? This paper presents one reason. A simple model of dynamic adjustment under strategic uncertainty demonstrates that by starting with a small group and then adding only entrants who are aware of the group’s history, one can obtain groups coordinated at higher levels of efficiency than in groups that start off large. Experiments provide support for this result, showing that, even though efficient coordination does not occur in groups that start off large, efficiently coordinated large groups can be “grown.” That is, by starting with small groups that find it easier to coordinate, we can add entrants – who are aware of the group’s history – to create efficiently coordinated large groups. This represents the first experimental demonstration of independent large groups tacitly coordinated at high levels of efficiency. However, the experiments also demonstrate that growth can be “too fast” and that “managers” may not always be aware of the need for slow growth.