coordination

What do coordination problems stem from?

they stem from strategic complementary : the more someone wants to do something, they more that you want to do it. bay area : being near other techs makes you want to be nearby for more manpower, help etc

Multiple equilibria

Stable outcome that depend on what everyone anticipates what everyone else will do

How are coordination problems different?

iN THE prisoners dilemma, individual self interest can lead to worse outcome for everyone involved. want to defect even if collective action is better overall

What is core idea for coordination problem?

people want to do what others are doing

Collective action equations

B > c (benefit if revolution is achieved, c is cost) ; Pr(success) = n/N (probability that common goal is achieved based on share of people that act) ; c/n+1 (cost of participation)

Strength in numbers

some types of actions get easier as the more people participate (protests) as n gets bigger, c gets divided by a larger number and the cost to act declines

When will people want to act?

If the payoff to acting is greater or equal to the payoff of free-riding

How are these actions now strategic complements?

payoff to acting is greater when n increases, payoff is lower and few act. the PAYOFF is lower if YOU dont act

Spontaneous revolutions

something shifted in what people thought others would do. the FEAR to public descent keeps quiet. keeps them in the BAD equilibrium. fear of standing alone keeps people locked away even if private beliefs are different

Social Conventions

rule or practice that provides a guide for social conduct. unwritten rules the dictate how we behave. may be etiqutte or fashion. you expect others to follow the rule, so you will. MUTUAL EXPECTATIONS

Harmful social conventions

• foot binding

• honor killing

• child marriage

Why do they persist? Because of the high personal cost of breaking the mold

What is the first-mover convention?

you may be outcast if you were to be the first person to stop doing something. it may come at too high of a cost. if everyone fears being the lone nonconformist, an equilibrium in which everyone regrettably conforms is established

How to end a social convention like footbinding?

• reformers focused on education that others don’t do it. show how natural feet are healthy and shows that an alternative exists

• showed how health is impacted

• made natural foot societies where members would not allow their sons to marry women with bound feet and don’t bind their daughters feet

they made a shared expectation among members, reduced the risk for individuals

Everyone benefits if it works, but an individual would get risked if they acted along

Confronting abusers is coordination problem

• individual powerlessness against someone who is so strong

  • there could be retaliation if someone would join them

    • if you expect everyone else to stay silent, your person incentive to stay silent is increased

if you expect people speak out, you will. STRENGTH IN NUMBERS

Collective Effort to Confront Coordination Problem

it is a shift of equilibirum, it is a crack in the dam and it is safer to speak against someone behaving disgusting

Benefits didn’t change ; now the costs changed

when others speak out, a victim does not have to worry about the same fears of retaliation

What kinds of policies will solve coordination problems?

Whistleblower protections will shield individuals who report illegal activities within an organization from retaliation

How do whisterblowers help?

It actively encourages individuals to come forward to lower the personal cost and can keep people safe from harm. For example, SEC can give financial rewards that will lead to enforcement actions

Helps overcome the coordination barrier and mitigates the perceived risks.

Strategic complementary

situations where your incentive increases the more that people do the same thing (positive feedback loop in decision making)

What are the Nash Equilibria?

Invest Invest, Don’t Don’t.

Why do both firms want to coordinate

Firm 1 return on investment depends on how much firm 2 invests

Why do strategic complementarities exist?

If no one else is acting, being the first-move makes little paoff

Are both pareto efficient? Why is this agglomeration?

No, invest invest dominates don’t don’t (1 is larger than 2). Both companies want to invest becuase payoff is higher if they are in same city

Why are the firms choices rational?

This is a collective action problem. If they don’t expect the other to invest, they don’t want to. This rational behavior leaves both firms worse off.

What are the three types of coordination problems?

Pure coordination : equal advantageous equilibria , Distributional : players favor different equilibria , Coordination Traps : one equilibrium pareto dominates the other

Can pure coordination lead to a social dilemma?

NO! ONLY COORDINATION TRAPS GENERATE SOCIAL DILEMMAS

What is a pure coordination problem?

Driving, both want to drive on the same side or they will crash. Both choices are equally advantageous. No option is better than other

What are distributional problems?

Concerts, payoff of attending is higher if the other does the same. Players prefer different but are no significantly put at a disadvantage as long as they do the same

Why is public vs private a coordination trap?

Parents may expect others to opt out of private, so they get trapped in a self-reinforcing pattern of behavior that they may regret

What are policy responses to solving coordination traps?

1. Communication : communicate decisions before choosing

   1. can help align their expectations and build trust

2. Leadership : reset expectations

3. Insurance : limit downside of failed coordination

How could communication help coordination trap of schools?

1. Talk about strong public schools and build confidence that others will join in. It will eliminate personal fear of being left out.

Problem? People can lie and then opt out without communicating properly.

How could leadership help coordination trap of schools?

1. someone will step up and show the belief, must be influential. will say one is better option than the other

How could insurance help coordination trap of schools?

1. ways to reduce the risk of choosing the risk of the better, but riskier option.

2. reduces fear factor, makes it less risky. makes it a safety net

How does solving coordination traps help?

once you shift behavior to better behavior, it becomes self sustaining

the temporary push is only to get over the hum

How are bank runs a coordination trap?

1. if they both keep their money in the bank, it’ll increase the investment. if they withdraw, they may panic and the bank will face a liquidity crisis.

How do we fix bank problem?

Deposit insurance fixes it because fundamentally, even if the bank does fail, your deposit is still safe. knowledge of insurance changes the calculation. insurance makes pulling less appealing

Why do insurers rarely pay claims?

insurance makes pulling less appealing and it stops the panic before it starts. it removes the coordination trap

What is agglomeration (strategic complementarities)?

returns to investing are great when others invest (bay area shit)

What is a strategic complementarities example?

agglomeration, invest if others do . picking a lane ; safer to drive on same side . bak panics ; pull if others do, sit tight if others do

What can strategic complementarities generate?

They can create multiple equilibria where there are two nash equils.