Coordination problems arise in many organisations, and their resolution determines the success or failure of the entire organisation. Organisations may be successful in coordinating on a good outcome, or they may become trapped in an inefficient situation even though better outcomes are also potentially stable. How do organisations achieve a better outcome? One possibility is to have a leader who either leads by example or makes a suggestion to coordinate organisational effort. How successful are these two types of leader interventions? Will the leader have the ability to restore efficiency after a history of coordination failure?
In this Nottingham School of Economics working paper, Lu Dong, Maria Montero and Alex Possajennikov investigate the limits of communication and leadership in an environment modelled as a weakest-link game. Players in the game choose costly individual efforts and the benefit for the whole group is determined by the minimum of the efforts chosen. Coordinating on a high effort is best for the group but risky for an individual; choosing the lowest possible effort is the safest option. The environment is challenging since the benefit of coordination is relatively low compared to the individual cost, and coordination failure is common in such situations. The authors consider two types of leaders: leaders who suggest a certain effort level to coordinate, and leaders who lead by example. Leadership is introduced either from the beginning to see whether it can prevent coordination failure, or after a history of coordination failure to determine whether it can restore efficiency. The effect of leadership is investigated in a laboratory environment, in which some of the student participants are randomly chosen to play the role of leaders, while other participants play the role of followers. The experiment results show that the leaders have some, albeit limited, ability to prevent coordination failure in this challenging environment. After a history of coordination failure, although there are some attempts of both leaders and followers to increase efficiency, in the long run leadership has no effect. Indeed, no group is able to escape the coordination trap in this case. Using data collected from followers' responses to all possible suggestions or choices by the leaders, the authors attribute the persistence of coordination failure to the presence of followers who never follow the leader and always choose the lowest effort.
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CeDEx Discussion Paper 2015/17, Communication, Leadership and Coordination Failure by Lu Dong, Maria Montero and Alex Possajennikov
Lu Dong, Maria Montero, Alex Possajennikov
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Posted on Friday 4th September 2015