Definition of Coordination Problems in Economics

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Coordination in economics refers to the problems associated with making diverse economic activities mesh together seamlessly to produce economic value. Historically, economic coordination referred to the coordination of activities and processes within an organization. More recently, it has been used to address the coordination of all economic activities across an economic sector and how this takes place in the absence of a coordinating authority. These concepts also apply to the global marketplace. A lack of coordination results in lower benefits to the participants in the economic activity.

Concatenate Coordination

  • Within an organization, economic coordination organizes the work flow and is undertaken by the organization's leadership to maximize performance and attain the organization's goals. Such coordination consists of the concatenation of diverse tasks into a series or sequence that results in efficient operation overall. The main problem is the determination of the concatenation that gives the best result. This concatenate coordination is changed and adapted as appropriate by the organization's leadership.

Coordination Across Economic Sectors

  • An organization engaging in economic activity must coordinate its actions, which are internally concatenated, with the actions of other organizations. In the absence of an overall leadership that can undertake such coordination, a problem of insufficient coordination will often limit potential benefits. The problem becomes even more extensive when applied to global marketplaces where linguistic and trade barriers make economic coordination more difficult. When economic sectors or organizations are more unlike, more resources must be dedicated to economic coordination to achieve optimum performance.

Mutual Coordination

  • In the absence of an overall leadership that can undertake the coordination of economic activity within a sector, the organizations themselves must make efforts to adjust their activities so that they match what is required by their partners. The key factor for such economic coordination is the availability or supply of appropriate and accurate information. Customers must supply information regarding what they need and suppliers must publish information about the products and services they can supply. Economic coordination is achieved in a particular case when an exchange of goods or services takes place as planned and according to the agreement reached by the partners.

Lack of Coordination

  • While a lack of economic coordination and a reduction in benefits can result from acts of omission, when participants in the market don't supply enough information, it is even more corrosive when participants consciously supply incorrect information. When a supplier publishes exaggerated claims for products, for example, the resulting inefficiencies, when products are not used according to their real characteristics, affect all market participants and lead to higher costs, lower profits, longer delivery times and lower availability of products. Market participants may increase economic coordination by insisting on cooperation and accurate communication.

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