DP14356 Using Social Connections and Financial Incentives to Solve Coordination Failure: A Quasi-Field Experiment in India's Manufacturing Sector

Author(s): Farzana Afridi, Amrita Dhillon, Sherry Xin Li, Swati Sharma
Publication Date: January 2020
Keyword(s): caste-based networks, coordination, Financial incentives, minimum effort game, output, social incentives
JEL(s): C93, D20, D22, D24, J33
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14356

Production processes are often organized in teams, yet there is limited evidence on whether and how social connections and financial incentives affect productivity in tasks that require coordination among workers. We simulate assembly line production in a lab-in-the-field experiment in which workers exert real effort in a minimum-effort game in teams whose members are either socially connected or unconnected and are paid according to the group output. We find that group output increases by 18%, and coordination improves by 30-39% when workers are socially connected with their co-workers. These findings can plausibly be explained by the higher levels of pro-social motivation between co-workers in socially connected teams.