Scandinavian Working Papers in Business Administration
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2025/9: Comparing Subsidies to Solve Coordination Failure
Roweno J.R.K. Heijmans () and Sigrid Suetens ()
Additional contact information
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
Sigrid Suetens: Dept. of Economics, CentER,Tilburg University, Postal: Tilburg University , Department of Economics, PO Box 90153, 5000 LE Tilburg, The Netherlands
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
Language: English
26 pages, March 7, 2025
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