Introduction

The analytic foundations of the approach to macroeconomics described in the essays in this book lie in game theory, and, more specifically, in coordination problems that can exist even in an equilibrium setting. The existence of coordination problems provides a reasonable explanation of how macroeconomic problems can come into existence, even as all individuals are rational.

Coordination problems have received increasing attention of late in game theory and industrial organization, as well as in macroeconomics (see, for example, James Friedman (c. 1994)). These game-theoretic coordination developments may be particularly promising for providing a Post Walrasian approach to macroeconomics, and ultimately for elucidating the role of the macroeconomic context and institutions in determining microeconomic behavior.

In this paper I consider some simple examples of coordination failure, which make the basic concept clearer, and, hopefully, more intuitively satisfying. Specifically, I develop the concept of team coordination failure which lies at the heart of Colander's proposed Marshallian aggregate production function x = f(K, L, C), where C is the “new” variable reflecting degree of coordination in the economy. In doing so I further some arguments I made in Bryant (1983, 1987, 1992, 1994).

Leigh Tesfatsion provides a clear definition of the sort of coordination failure emphasized in this paper.