Previous experiments using the minimum-effort coordination game reveal a striking regularity—large groups never coordinate efficiently. Given the frequency with which large real-world groups, such as firms, face similarly difficult coordination problems, this poses an important question: Why do we observe large, successfully coordinated groups in the real world when they are so difficult to create in the laboratory? This paper presents one reason. The experiments show that, even though efficient coordination does not occur in groups that start off large, efficiently coordinated large groups can be “grown.” By starting with small groups that find it easier to coordinate, we can add entrants—who are aware of the group's history—to create efficiently coordinated large groups. This represents the first experimental demonstration of large groups tacitly coordinated at high levels of efficiency.

We use surveys, laboratory experiments and administrative data to study how heterogeneity in the perceived immorality of work and in workers' aversion to acting immorally impact labor market outcomes. Immoral work is associated with higher wages, both in administrative data and in causal experimental evidence. Individuals more willing to engage in immoral conduct find employment in firms and industries perceived as immoral less aversive and have higher employment rates in immoral work in the laboratory. These phenomena appear to be driven by impure social motives, reflecting a desire not to be involved with immoral work, rather than by consequentialist concerns.

This article studies socially responsible behavior in markets. We develop a laboratory product market in which low-cost production creates a negative externality for third parties, but where alternative production with higher costs mitigates the externality. Our first study, conducted in Switzerland, reveals a persistent preference among many consumers and firms for avoiding negative social impact in the market, reflected both in the composition of product types and in a price premium for socially responsible products. Socially responsible behavior is generally robust to varying market characteristics, such as increased seller competition and limited consumer information, and it responds to prices in a manner consistent with a model in which positive social impact is a utility-enhancing feature of a consumer product. In a second study, we investigate whether market social responsibility varies across societies by comparing market behavior in Switzerland and China. While subjects in Switzerland and China do not differ in their degree of social concern in nonmarket contexts, we find that low-cost production that creates negative externalities is significantly more prevalent in markets in China. Across both studies, consumers in markets exhibit less social concern than subjects in a comparable individual choice context.

We explore the relationship between outcomes in a coordination game and a pre-play asset market where asset values are determined by outcomes in the subsequent coordination game. Across two experiments, we vary the payoffs from the market relative to the game, the degree of interdependence in the game, and whether traders' asset payoffs are dependent on outcomes in their own or another game. Markets lead to significantly lower efficiency across treatments, even when they produce no distortion of incentives in the game. Market prices forecast game outcomes. Our experiments shed light on how financial markets may influence affiliated economic outcomes.

Principal-agent relationships are typically assumed to be motivated by efficiency gains from comparative advantage. However, principals may also delegate tasks to avoid taking direct responsibility for selfish or unethical behavior. We report three laboratory experiments in which principals repeatedly either decide how much money to share with a recipient or hire agents to make sharing decisions on their behalf. Across several experimental treatments, recipients receive significantly less, and in many cases close to nothing, when allocation decisions are made by agents.

We investigate the causal impact of public discourse on socially responsible market behavior. Across three laboratory experiments, having market participants engage in public discourse generally increases market social responsibility. These positive impacts are robust to variation in several characteristics of the discourse. We provide evidence that discourse strengthens beliefs that others support socially responsible exchange. However, relaxing requirements to engage in discourse sharply reduces its effectiveness. Our findings suggest that campaigns encouraging discussion of appropriate market behavior can have sizable impacts on addressing inefficiencies due to market failures but that policies encouraging broad public engagement may be important.

Firms frequently attempt to increase profits by replacing some existing workers with new lower-wage workers. However, this strategy may be ineffective in an incomplete-contract environment because the new workers may provide lower effort in response to their lower wages, and hiring new lower-wage workers may damage the remaining original workers' reciprocal relationship with the firm. We conduct an experiment to examine this issue and find that when new lower-wage workers become available, firms hire them to replace original higher-wage workers and pay the new workers lower wages. However, these lower wages do not improve firm profit because the decision to hire new lower-wage workers causes both the new and remaining workers to provide lower effort. Moreover, hiring lower-wage workers reduces new workers' payoffs and, thus, decreases social welfare. These unintended consequences suggest that firms should consider both the wage savings and the potential costs when deciding whether to replace some workers with new lower-wage workers. We discuss the implications of our findings for contract design, hiring practices, and managerial accountants.