A Road to Efficiency through Communication and Commitment

Abstract

We experimentally examine the efficacy of a novel pre-play institution in a well-known coordination game—the minimum-effort game—in which coordination failures are robust and persistent phenomena. This new institution allows agents to communicate while incrementally committing to their words, leading to a distinct theoretical prediction: the efficient outcome is uniquely selected in the extended coordination game. We find that commitment-enhanced communication significantly increases subjects’ payoffs and achieves higher efficiency levels than various nonbinding forms of communication. We further identify the key ingredients of the institution that are central to achieving such gains. (JEL C73, C92, D83)

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