Organizational Coordination and Costly Communication with Boundedly Rational Agents

Abstract

How does costly communication affect organizational coordination? This paper develops a model of costly communication based on the weakest-link game and boundedly rational agents. Solving for the stochastically stable states, we find that communication increases the possibilities for efficient coordination compared to a setting where agents cannot communicate. But as agents face a trade-off between lowering the strategic uncertainty for the group and the costs of communication, the least efficient state is still the unique stochastically stable one for many parameter values. Simulations show that this is not just a long run phenomena, the stochastically stable state is the most frequent outcome also in the short run. Making communication mandatory induces efficient coordination, whereas letting a team leader handle communication increases efficiency when the leader expects others to follow and has enough credibility. The results are broadly consistent with recent experimental evidence of communication in weakest-link games.

Asymmetric and Endogenous Communication in Competition between Groups

“…The main message from this small literature is that efficient coordination is reduced because people choose to communicate too little even when the communication costs are small relative to the communication gain. This could be due to factors such as bounded rationality (Dietrichson and Jochem, 2014). In our environment, charging a fee to communicate may make subjects to communicate less often for both strategic and nonstrategic reasons.…”