The Costs and Benefits of Coordinating with a Different Group

Paul Grout, Sebastien Mitraille and Silvia Sonderegger

The trade-off between adaptation and coordination has long been recognized as important, not only within economics but also in other disciplines. This trade-off arises when people care (i) about performing actions that are close to their preferences, but also (ii) about coordinating with others. A typical example is that of managers who decide how to organize and run production within their divisions - this includes deciding how to assign tasks to workers, which technologies to use, how much emphasis to put on meeting deadlines, etc. Each manager has preferences over the way in which production should be organized in his division. However, different divisions must interact in order to complete their projects; since coordination facilitates this process, managers are also concerned with coordinating with those divisions with whom they must interact. Another context in which the trade-off between adaptation and coordination arises is social exchange, which is affected by personal preferences on how the exchange should occur (dress code, etiquette, etc.) but also by the need to coordinate with others. A third illustration is given by a parent who must instil moral values in his child, and who faces a trade-off between the desire to transmit values that reflect his personal preferences and the desire to conform to society at large. E.g., a prudish parent may have a personal preference for instilling a strict moral code in his child, but he may also have to make concessions if other children are raised more liberally, or else his child risks being ostracized by other children. An important question that arises within this context (and which is of clear importance in modern society) is: What happens when people from different backgrounds are mixed together?

In this Nottingham School of Economics working paper, published in The Journal of Economic Theory, Silvia Sonderegger and her co-authors addresses this question. People from the same (respectively, different) backgrounds are modelled as having preferences that are drawn from the same (respectively, different) distributions. At the outset, it may appear that introducing people from a different group should generally decrease coordination, since their preferences are drawn from a different distribution. The paper shows that this intuition can be misguided once individual reactions to a different environment are taken into account. The surprising implication is that adding people whose preferences are uncorrelated with those of the incumbents may actually improve coordination. Silvia Sonderegger and her co-authors show that this effect may induce people to prefer mixed rather than homogeneous environments. However, mixed environments also bear a cost, since, on average, people can expect to be confronted with behaviors that match their own preferences less closely. Ultimately, an individual's "preferred" environment is the outcome of these opposing forces.

Forthcoming Journal of Economic Theory, “The Costs and Benefits of Coordinating with a Different Group” by Paul Grout, Sebastien Mitraille and Silvia Sonderegger.

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