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Comparing Subsidies to Solve Coordination Failure

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Abstract

We use experiments to systematically test the performance of subsidies aimed at inducing efficient coordination in a coordination game. We consider two classes of policies: those based on divide-and-conquer (i.e. iterated dominance) and those making the efficient Nash equilibrium of the game risk dominant. Cost-efficient policies from both classes are equally expensive but differ in the distribution of subsidies among agents. Our results show that risk dominance subsidies increase coordination more effectively or at a lower cost than divide-and-conquer subsidies.

Suggested Citation

  • Heijmans, Roweno J.R.K. & Suetens, Sigrid, 2025. "Comparing Subsidies to Solve Coordination Failure," Discussion Papers 2025/9, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2025_009
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    File URL: https://hdl.handle.net/11250/3182219
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    More about this item

    Keywords

    Coordination; policy design; divide-and-conquer; risk dominance; experiment; contracting with externalities;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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