Improving coordination and cooperation through competition. Caltech, Working Paper

Abstract: We use game theory and experimental economics approaches to ana-lyze the relationships between corporate culture and the persistent performance dif-ferences among seemingly similar enterprises. First, we show that competition leads to higher minimum effort levels in the minimum effort coordination game. This im-plies that, organizations with competitive institutional design are more likely to have better coordination, hence better performance outcome. Furthermore, we show that organizations with better coordination also lead to higher rates of cooperation in the prisoner’s dilemma game. This supports the theory that the high-efficiency culture developed in coordination games act as a focal point for the outcome of subsequent prisoner’s dilemma game. In turn, we argue that these endogenous features of cul-ture developed from coordination and cooperation can help explain the persistent performance differences