Research

Working Papers

• Dynamic Coordination with Switching Costs (with Luke Boosey)

Abstract: A key component to the efficient functioning of an organization is the successful coordination of activities by its constituent divisions. However, in many organizational settings, departments are initially uncertain regarding how to coordinate. Moreover, it is typically costly for a department to modify its procedures, which introduces frictions that may impede coordination. In this paper, we study dynamic coordination with costly switching, where two players search for compatible platforms. We introduce a stylized model, which predicts that players remain on their current platforms whenever their common belief is sufficiently optimistic; otherwise, they switch with increasing probability whenever they are more pessimistic about compatibility, switching is less costly, or success on compatible platforms is more likely. In an experiment, we vary (i) whether success is deterministic or stochastic when players are on compatible platforms, and (ii) the cost of switching. The data are largely consistent with comparative statics predictions, particularly in the deterministic case, although subjects tend to "under-switch" at low beliefs. Behavior is more nuanced in the stochastic setting, where learning is complicated by the fact that success is not guaranteed by compatibility.