Reference Entry

coordination failure

Nigar Hashimzade, Gareth Myles and John Black

in A Dictionary of Economics

Fifth edition

Published in print January 2017 | ISBN: 9780198759430
Published online January 2017 | e-ISBN: 9780191819940
coordination failure

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A situation where activities which could have benefited two or more parties do not take place because they fail to coordinate their plans. For example, one might find mineral resources which are not mined because there is no transport to export them, and a railway which is not built because there is no freight for it to carry. If both projects went forward, both would be profitable, but neither is started, because the firms concerned do not know about, or do not trust, each other. The same problem can affect governments: a number of countries may refrain from liberalization of their trade because of worries about the effects on their balance of payments, whereas if they could all agree to liberalize at once, all could benefit. Coordination failure occurs when there are multiple equilibria and economic agents do not know which equilibrium will arise. It is possible that they will coordinate on an inefficient equilibrium (e.g. not opening the mine or constructing the railway) even when an efficient equilibrium exists....

Reference Entry.  172 words. 

Subjects: Economics

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