Thread by @oliverbeige

A few notes on coordination, adaptation, and the role of institutions.

"Both the organization theorist Chester Barnard and the economist Friedrich Hayek took adaptation to be the main purpose of economic organization, but with differences." — Oliver Williamson Nobel Lecture

Unlike cooperation, which has taken on the meaning of "solving the Prisoner's Dilemma" and collaboration, which just generically means "working together", coordination suffers from being semi-defined, which often means one has to divine the type of coordination implied.

Based on a very useful pointer from @petergklein, it turns out the meaning of coordination has shifted over time, from longitudinal alignment (concatenation) to simultaneous alignment.

https://twitter.com/petergklein/status/1304414151293501441?s=20

The traditional definition, which focuses on longitudinal contingencies (and is likely also the definition Barnard had in mind), is the traditional purview of production – in today's parlance: supply chain, typically captured in machine scheduling models.

https://twitter.com/oliverbeige/status/1249430469202137094?s=20

The modern definition, ascribed to Schelling, focuses on synchronous (mis)alignment in the absence of communication. There is a standard game known as "Pure Coordination", but it comes with variants usually summarized as coordination games.

https://twitter.com/oliverbeige/status/1081986806076329987?s=20

Just to name some of the most common variants:
Battle of the sexes is coordination with goal conflict.
Stag hunt is coordination under nonparticipation risk.
Tragedy of the commons is anti-coordination or crowding game.

The world of coordination games is rich and fascinating, but most of it hinges on understanding the context. The original building block is actually quite boring. Written in a particular way, it is a Prisoner's Dilemma with the temptation of selfish motives removed ("slashed").

The reason why it's boring is that as a one-shot game it has an obvs dominant, symmetric, Nash, Pareto-optimal strategy set CC. It only becomes interesting if we add context, e.g. how do we get from DD to CC without communicating?

In the world of operations research, the problem of "D-to-C" is known as machine replacement problem. In economics, the problem of coordinated machine replacement has an even wider scope. It's also known as Innovation.

A reason for this is that coordination underpins the important concept of mutuality (of the OEW trifecta conflict-mutuality-order). Mutual action is always preferred by all parties. Except the risks and rewards of finding such a mutual solution are not always equally distributed.

Sometimes symmetry or asymmetry of risks and rewards can be the driver, and sometimes an obstacle to this process of reaching a higher metastable state called "innovation". See the penguins dilemma.

https://twitter.com/oliverbeige/status/960893795234664448?s=20

From this it is just a small step to realizing that timing is a major driver of coordination success or failure, and thus we're back to the Barnard-type coordination as intertemporal concatenation of activities.

https://twitter.com/oliverbeige/status/1114279851635159040?s=20

But what is a Barnard concatenation failure? We experience it every day when we take multiple buses or trains to reach a destination. If we have a sequence of buses 1-2-3-4, only one has to be late for our whole trip to be out of whack. Another word for this is a Forrester shock.

A key point is that the cost of such a system failure can dwarf the individual cost of a single failure due to accelerating upstream and downstream knock-on effects (externalities). This gave rise to concepts like opportunism and holdup. And a resolution concept called contract.

At the juncture of Barnard's longitudinal concatenation and Schelling's simultaneous synchronization we have a different set of ideas on how to coordinate: The Hayek-Coase spontaneous, polycentric or decentralized coordination. In OR we would call it multi-machine scheduling.

Whether it was expanding industrialization or transportation or the emerging socialist calculation debate, the folks at LSE realized that coordination happens at the intersection between contingent (concatenated) and simultaneous action. Tom Schelling would've agreed.