Coordination failure occurs when agents or firms fail to coordinate.Due to the failure of co-ordination, they achieve a lower equilibrium than they could have if they had coordinated their decision. If the education is improved, it increases the level of literacy in the country. High level of education can be associated with increased technology. This is obvious because technology and educated citizens go hand in hand. Thus, this leads to higher GDP and better standard of living among the people.

An example of co-ordination failure is the prisoner's dilemma. If both the prisoners are equally well off coordinating, then the problem of co-ordination failure can be declined. Thus, a rational decision is made.