CORPORATE DOWNSIZING TO REBUILD TEAM SPIRIT: HOW COSTLY VOTING CAN FOSTER COOPERATION

We propose a new mechanism to achieve coordination through voting, for which we discuss a number of real‐life applications. Among them, the mechanism provides for a new theory for downsizing in organizations. A crisis may lead to a decrease in the willingness to cooperate in an organization, and therefore to a bad equilibrium. A consensual downsizing episode may signal credibly that survivors are willing to cooperate, and thus, it may be optimal and efficiency‐enhancing (for the individuals remaining in the organization), as the empirical evidence suggests. A variation of the same mechanism leads to “efficient” upsizing. (JEL: C70, D70, M50)