Here are other examples of coordination problems. Discuss them and think of other situations which can be modeled in this way.

(a) International debt: Suppose that a country considers default on its international debt to a creditor country. In case of default, the creditor country can stop trade with the defaulter, even though this action may be costly for the creditor country to do. Hence, the more potential defaulting countries there are, the more difficult it becomes for the creditor country to “punish” a defaulter. Show that this situation gives rise to a coordination problem among the defaulters and describe precisely the complementarity among borrower countries.

(b) Investing in the stock market: Suppose that a stock yield returns that exceed the average market rate if no one sells the stock in panic. Now imagine that for every person who panics and sells the stock, the rate of return on the stock decreases. Show why this is a coordination problem and describe the possible equilibria.

(c) Cities: Think of the emergence of cities as an outcome of coordination games. What would we mean by multiple equilibria in this context? Discuss this answer with respect to the concentration of certain types of industries in certain locations: for example, computer companies in Silicon Valley.