4.1 Underdevelopment as a Coordination Failure

Coordination Failure

A situation in which the inability of agents (such as firms or consumers) to coordinate their decisions leads to outcomes that are inferior for everyone compared to what could be achieved through cooperation

Low-Level Equilibrium Trap

A self-reinforcing situation where poverty, low productivity, and low investment persist, keeping an economy from growing.

Coordination Externality

When the success of one firm or sector depends on simultaneous investments or actions by others, making coordination crucial for development.

Complementarities

When one economic agent’s actions (like investing in technology or skills) increase the incentives for others to act similarly.

Increasing Returns to Scale

When output increases by a greater proportion than inputs, often resulting from coordinated, large-scale production.

External Economies

Benefits that a firm or sector gains from the overall expansion of the economy or other industries, rather than from its own activities.

Public Coordination Role

The role of government in facilitating coordination, guiding investments, and helping overcome underdevelopment traps.

Poverty Trap

A cycle in which low income leads to low investment in human and physical capital, perpetuating poverty over time.