5. Coordination Failures

This chapter continues the exploration of coordination failures stemming from uncompensated external effects, expanding on the concepts introduced previously. It presents a comprehensive taxonomy of coordination problems based on the nature of external effects (positive or negative) and whether strategies are complements or substitutes. The chapter illustrates these concepts through real-world problems, including the over-exploitation of fisheries or other common pool resources, fiscal competition among nations, conspicuous consumption as a "public bad," and residential segregation.

The chapter also explores the exercise of bargaining power as first movers, highlighting the surprising result that a second mover may be better off following a first mover than in a game with simultaneous moves. This illustrates power asymmetries are not only a source of inequality and sometimes injustice; they are also a resource for solving coordination problems.