Managerial Leadership, Truth-Telling, and Efficient Coordination

Abstract

We study the MS game, a novel coordination game played between a manager and two subordinates. Unlike commonly studied coordination games, the MS game stresses asymmetric payoffs (subordinates have opposing preferences over outcomes) and asymmetric information (subordinates are better informed than managers). Efficient coordination requires coordinating subordinates’ actions and utilizing their private information. We vary how subordinates’ actions are chosen (managerial control versus delegation), the mode of communication (none, structured communication, or free-form chat), and the channels of communication (i.e. who can communicate with each other). Achieving coordination per se is not challenging, but total surplus only surpasses the safe outcome when managerial control is combined with three-way free-form chat. Unlike weak-link games, advice from managers to subordinates does not increase total surplus. The combination of managerial control and free-form chat works because under these conditions subordinates rarely lie about their private information. Our results suggest that common findings from the experimental literature on lying are not robust to changes in the mode of communication.