Competitive coordination in a pandemic

One of the things I was pondering is how stupid we are on a global and sometimes on a national level in facing this pandemic. There is a massive shortage of face masks, ventilators, and other crucial healthcare resources to help patients affected by the Coronavirus. Yet, in the United States, thanks to a complete lack of leadership on the Federal level, there is no coordination to purchase these resources for all states and allocate them where needed the most. Instead, the Governors of different states have to compete with each other in procuring these resources. The end result is that the price for masks and ventilators skyrockets and richer states purchase more while poorer states are left behind. If you live in a poorer state or a state that cannot compete with other buyers for other reasons, then you are more likely to die if you become sick. 

The same happens on a global level where richer countries can afford to buy more devices and drugs than poorer states, independent of the actual need in each country.

In an ideal world, countries and states would coordinate with each other to optimise the supply of medical devices.

This is where governments can learn something from the research on communication within businesses. Any complex business faces the same issues every day. There are limited resources in terms of funding and management attention that different units try to access to achieve their goals and increase their profits. 

So, what can economics teach us about this coordination problem? Usually, such situations are explored with the help of coordination games, sometimes also called “weakest link games”. Their premise is quite simple: You put several participants into a group. Each participant has a certain amount of resources, e.g. $10. Then each participant can decide to keep some of the money for herself and put the rest in a group pool. After each participant has chosen how much to put into the group pool, each member of the group will receive the lowest amount any of the participants have put into the pool. So. if you have a group of three people and one puts $2 into the pool, the next person $4 and the third $7, then each of the three participants will receive $2 out of the pool at the end of the game. Hence, the weakest link, i.e. the person who puts the least amount into the pool decides how much success the group has.

One of the key outcomes of these coordination games is that if there is no communication possible between the individual participants, then the outcome is generally really bad with little money put into the common pool and as a result, few gains made by the group. However, if the participants can communicate with each other before putting money into the pool, the outcome improves massively and participants put much larger amounts into the pool and benefit more as a group. Teamwork increases the success of the group but teamwork only materialises if the individuals in the team communicate with each other.

Interestingly, we know from organisational studies that it doesn’t matter if the members of the team communicate with each other directly or if they are forced by a manager to communicate with each other. Even if communication just runs from a leader to the employees, coordination increases and outcomes improve massively. This is why it is so incredibly important for leaders in businesses to communicate all the time. They may seem to be doing nothing but talking all day, but this communication is what allows teams to work effectively with all the relevant information they need. And this is also, why leaders who don’t communicate or don’t foster the exchange of information in an organisation are so ineffective and create terrible outcomes for the organisation. Does that remind you of any of our political leaders these days? I thought so…

It gets even more interesting if you put participants into a competitive coordination game. In these games you pit two groups against each other. Each group plays a coordination game like the one described above. But then, the payout of each group’s pool is turned into lottery tickets to win a big prize. For example, if the first group gets $2 out of the coordination game and the second group gets $7 out of the coordination game, then group one gets 2 lottery tickets and group 2 gets 7 lottery tickets to win a great prize of $50.

The interesting thing is that the more effort in coordinating their actions one group exerts, the lower the chances for the other group to win the big prize. As you might imagine, if groups can communicate internally, they both try to exert maximum effort and as a result get to a suboptimal outcome because, in the end, only one of the groups can win the big prize while the other group will leave empty-handed, despite all their best efforts. In essence, communication within one group leads to the same outcome as not communicating at all.

What is needed to create the best overall outcome is to enable the two groups to both communicate within each group and with the other group. What happens in these circumstances is counterintuitive but optimal. If both groups can communicate with each other, they typically coordinate to put less money into the pool. As a result, both groups have roughly the same chance to win the big prize but if they don’t win, their losses are limited, so their feeling of regret is reduced. So, coordination and communication between groups lead to lower effort but better outcomes overall. 

And this is exactly, what we should do. States and countries should coordinate globally to order only the supplies they need. If there isn’t enough supply for everyone, then every member of the international community has to take a step back and reduce their demands so that on a global scale, the resources are shared most effectively. As I aid in an interview with the Swiss newspaper Finanz & Wirtschaft, this is what would probably have happened ten or twenty years ago. Under the leadership of the United States, the G20 or the United Nations would have coordinated a global response to the pandemic. Yet, with the rise of populist and nationalist politicians in Europe and the Americas, now every country is trying to solve the pandemic on their own. And the result is more people dying…