Events

Economics Seminar

Author:

• Liang Dai
  Shanghai Jiao Tong University

We study the role of organizations in coordinating actions of diverse individuals with strategic complementarity and incomplete information. An organization obligates its members to take collective actions and thus mitigates strategic uncertainty. But it may also compel its members to take the collective action not in their favor and make them reluctant to join ex ante. This tradeoff caps the size of organizations and limits the resulted welfare improvement. Organizations could exist only if strategic complementarity dominates preference heterogeneity of the population, and their maximum size increases in the strength of strategic complementarity and decreases in the degree of preference heterogeneity. In all equilibria with organizations, welfare increases with the size of organizations. Finally, perturbation to the preference distribution can have a non-monotonic impact on the size limit of organizations, offering a novel perspective to study the impact of immigration or polarization on existing social order.