Managing Global Risks in a World Where Collective Action Fails¹

Climate change, global financial crises, pandemics, fragility and conflict are all examples of global risks that cross geographical and generational boundaries. Mismanaging these risks can reverse gains in development and jeopardize the well-being of generations around the world. Managing such risks is a global public good, through collective action facilitated by the international community. Yet, as many public goods, provision of global public goods suffer from collective action failures, and call for an international community that works around a well-defined common goal, knowledge buildup and sharing, proactive and longer-term planning, greater resources for capacity building, and protection of the most vulnerable. Adhering to these principles is important in a world where increasingly more complex and interconnected risks continue to emerge. 

Global Risks Recognize No Boundries 

Countries face many risks that can overwhelm national capacity and require collaboration with other nations and intervention by the “international community.”2 Such risks cross geographical boundaries. Some may transcend generations, because the effects and scope of the risks brewing today may not be sufficiently visible for many years. While growing interconnectedness through trade, communications, travel, information, and finance facilitates economic growth and opens new opportunities, it may also magnify the impact of the risks and complicate their management.  

Economic and financial crises is a clear example of a global risk in a world of tightly interconnected economic and financial systems. Once triggered, financial crises can rapidly spread across countries through globally active financial institutions, creating widespread economic and social damage. The global financial crisis that hit the world in 2008 following the failure of several large, complex, and interconnected financial institutions led to an unprecedented disruption in financial markets and a sharp slowdown in global growth and employment, putting many people, even in advanced countries, at the risk of falling to extreme poverty and exclusion (Ötker-Robe and Podpiera 2013).  

Health risks also cross national boundaries in a tightly interconnected world. Increased air travel and  trade can provide free passage to pathogens that cause infectious diseases, and travel around the world in less than 3 days. The Covid-19 pandemic in early 2020 caused an unprecedented disruption globally, with the reported cumulative deaths exceeding 7 million by 2026. It triggered the largest global economic collapse after the Great Depression of the 1930s, with wide-spread shutdowns and disruption of global supply chains despite extraordinary fiscal and monetary measures to contain the economic fallout (IMF WEO, Kose and others (2021), World Bank WDR 2022). While necessary, these measures also created new risks including rising private and public debt and inflation. 

Climate change risk is the most prominent example of global risks that have evolved slowly and nearly invisibly for decades. The broad scientific consensus attributes climate change largely to human activities, from burning fossil fuels, unsustainable farming and agriculture, and deforestation. Climate extremes (such as heat waves, floods, droughts, storms, and wildfires) have become more frequent and costly, and are expected to worsen as GHG concentrations reach record levels.3 Global rises in temperatures exceeded 1.50C from the pre-industrial period for the first time in 2024, heat-related deaths surged since the 1990s, and climate-related disaster damages exceeded US$1 trillion in 2025. Extreme weather, biodiversity loss and ecosystem collapse, and critical changes to earth systems are now among the top global risks over a 10-year period (World Economic Forum, 2026).  

1 This article is largely based on an International Monetary Fund (IMF) Working Paper, “Global Risks and Collective Action Failures: What Can the International Community Do?”, No. 14/195 (October 2014).

2 A collection of global standard setters and regulators, international financial institutions (IFIs), organizations of global cooperation, global media, civil society, and scientific community.

Conflict and fragility is another risk that can turn local and regional problems to globally shared risks. For example, national policies to promote growth and escape poverty may impose negative externalities on others, creating pressure on shared resources and hurting other countries and future generations (the “tragedy of the commons” problem). Countries acting in their own interest obtain immediate gain from their actions, but adverse outcomes are felt by others in time. The ongoing socio-political conflicts in the Middle East, Europe, and Africa are only a few examples. 

Obstacles To Resolving Global Risks 

Given their complexity, global risks such as these cannot be addressed by individual countries alone and call for global action. By managing risk collectively, the international community can enable complementarities across individual actions and enhance their impact by targeting the key obstacles countries face in mitigating those risks and provide broader, longer-term perspective to tackle risks.  

However, despite significant efforts and resources, the international community has had limited effectiveness in managing these risks. The global financial system remains exposed to a range of complex and interconnected risks. Climate change continues to bring the world closer to a tipping point despite substantial knowledge of the dangers of inaction. Systematic prevention/preparation for pandemics remains a challenge, and outbreaks continue to happen, as the Covid-19 pandemic, and most recently  deadly hantavirus on a cruise ship and Ebola in the DR of Congo, show. And conflict and fragility continue to undermine economic, political, and social stability globally.  

Collective action failures reflect a host of factors, ranging from: information and resource gaps or asymmetries that hinder formulation and transformation of knowledge to action, to conflicting national incentives in the absence of a global authority or institutions for global risk management. 

1. Information gaps/asymmetries limit knowledge and action. In finance, such gaps continue to hamper efforts to identify/manage systemic risk that hits connected financial systems. Global disease prevention and recovery are beset by information gaps created by weak communication between public health officials, disagreements over how data on pathogens are shared, and ensuing delays in detection and diagnosis, leading in turn to late/costly control measures. Data on climate risks remain scattered or lagged, with no systematic dissemination of key messages to summon global action. Missing information on the level of corruption, political risks, and implementation will affect willingness to engage in fragile and conflict-affected states. Missed engagement opportunity creates vicious cycles of fragility, poverty, corruption, and conflict, within and across borders. 

2. Limited resources and capacity to manage complex risks make it difficult for many low-income countries to access available knowledge, analyze causes and consequences of risks, afford protection, and take preventive actions. For instance, disaster insurance covers less than 20 percent of total disaster losses in Asia, Latin America, and the Caribbean, on average, compared to 60 percent in North America and Oceania (SwissRe). Funding shortfalls are also an obstacle to climate change mitigation and adaptation in developing countries and reaching global climate agreements, or in pandemic control. Deep uncertainty (e.g., on when we hit tipping points for global warming or on how economic agents act in complex and interconnected financial systems) add to resource and capacity constraints and get in the way of translating available global knowledge into action. 

3 About three-fourths of the total number of disasters since 1903 took place in the past 4-5 decades when the Earth’s temperature started to rise rapidly.

3. Political economy factors can create incentives that discourage proactive risk management. For environmental disasters, ex-post availability of disaster aid creates moral hazard, and weakens incentives to invest in early warning systems, enforce zoning regulations in disaster-prone areas, or buy insurance. Political reward for hazard prevention may be viewed small compared to gains from ex-post relief. Sustained investments to prevent pandemics may be crowded out by funding for disease mitigation after the fact. As efforts fail to focus on prevention, outbreaks such as Covid-19 continue to risk lives and well-being. In finance, lacking national or cross-border resolution regimes to proactively resolve weak systemic banks or bailout expectations create moral hazard, encouraging risk taking more than the buffers set aside. 

4. Myopia may also reduce perceived urgency for action, while creating a tendency to pass the risk onto others. Small-probability but high-impact risks are often ignored or discounted heavily in the face of short-term challenges or priorities, resulting in an underestimated cost of inaction. For instance, the cost of climate change mitigation to cut emissions not borne by today’s generation will be passed onto future generations, making it increasingly more costly and inadequate for intended outcomes. Similarly, fears that other countries will impose trade and travel restrictions tend to dampen governments’ willingness to share information on disease outbreaks, increasing the eventual cost of stopping it for all. Imprudent fiscal policies for short-term gain today put public debt on an unsustainable path and pass the debt burden onto future generations.  

5. Diverging national interests undermine global cooperation in the absence of a global authority that can enforce agreed-upon actions or explicit enforcement mechanisms. Absent this institutional infrastructure, global agreements among sovereign nations to supply global public goods (such as resolving climate change) must rely on voluntary participation, which works only with well-aligned incentives around a recognized common goal; that is, multilateral cooperation works best if national interests are well-aligned and impediments from domestic policy priorities are not overriding.   

• Managing environmental/health risks is a perfect illustration of incentive problems. Climate change affects countries unevenly, hurting some more than others. The perceived unevenness of climate risk effects and competing local policy priorities create diverging interests for action, making a global agreement harder to reach. In some earlier cases of cooperation (eradicating smallpox, protecting the ozone layer, or addressing nuclear war threat), vulnerability to highly damaging, quickly visible health/security risks for all helped remove collective action barriers.  
• Diverging incentives also played a role in the slow progress to reform the global financial system following the global crisis. The desire of individual countries to protect their national banking systems and different speed of economic recovery across countries led to differing views on the stringency and implementation pace of the new regulatory standards to ensure soundness of the global financial system and left the global financial system vulnerable to future  risks.  
• The slow progress in stabilizing fragile and conflict-affected states has also diverse national interests at its root. While preventing states from falling into conflict can be more cost-effective than responding after the fact, concerns about how their resources are used can make donors more cautious in committing to assistance, leaving severe risks unaddressed and raising ensuing cost of engagement. The cost of non-engagement goes beyond national borders in a connected world, resulting in more refugee populations, disease, conflict, and economic losses elsewhere.  

What to Do? 

The limited success of the international community to foster collective action on key global risks does not call for ceasing efforts to attain global solutions to the risks collectively created. Instead, it calls for removing the obstacles to collective action and finding the right incentives, institutions, and tools to enable cooperation—an appropriate mix of knowledge, protection, and coping tools.   

Cooperation works best when incentives are naturally well aligned. For some global risks such as financial crisis or pandemic risks, the capacity to generate rapid spillovers and spillbacks helps align national interests toward proactive, well-coordinated national actions aimed to contain risk at the source. The efficacy of such actions depends critically on prompt information and resource sharing and appropriate capacity and infrastructure to monitor, identify, and contain emerging risks. 

• Systematic access to knowledge should be the first step to collective action and effective risk management. Greater efforts are needed from the international community to narrow information gaps and address behavioral and cognitive biases through more systematic and targeted information dissemination. These should help raise awareness, reduce uncertainty on key risks, and promote integrated risk management given the complexity/connectivity of risks. 
• Resources for capacity building are also key to managing risk effectively. Capacity-building efforts should focus on: designing contingency plans to avoid suboptimal policies in the midst of crises with unintended consequences down the road; building buffers for negative outcomes; setting up monitoring, early-warning, and communication systems; analyzing complexities and networks of connections; developing more accessible insurance and hedging markets for risk-sharing; and financial support to vulnerable populations aimed at resilience-building. 

When incentives are not well-aligned or global participants are not persuaded that needed actions are in their interest, inaction could be potentially catastrophic/irreversible. This calls for new ways to reach global cooperation. While maintaining full participation as the ultimate goal, incremental actions by an initially small group of members can attract others through information, funding, or peer pressure. Calls for such coalitions of the willing increased for climate action after limited progress in global negotiations (WDR 2014; first global meeting of climate coalition of the willing).  

The crucial step in the incremental approach is finding a “common goal” around which like-minded participants can work to realign national interests. Several global or regional agreements have been reached through such incremental actions that started from smaller-scale initiatives to address a pressing problem of common interest (e.g., the Montreal Protocol to protect the ozone layer, the Nuclear Non-Proliferation Treaty, the European Union, and the World Trade Organization).  

As with full participation, agreeing on a common goal and realigning national interests require similar ingredients: improved access to knowledge and advocacy through alliances with civil society and scientific community; financial/technological transfers to lower participation costs; financial incentives to internalize costs of individual actions; mechanisms to internalize the cost of short-termism (e.g. accounting for resource depletion or environmental degradation in implementation and assessment of growth-focused policies (environmental accounting).  

The incremental approach is, of course, not without risks and is a second-best to a global solution with full cooperation. First, it could formalize free riding by those outside the coalition. There is also no guarantee for incremental actions to succeed in scaling up efforts to trigger global action. For certain risks (e.g., managing pandemics or global financial crises), global collective action is still the only viable approach, given rapid spillover risks in a tightly interconnected world. But waiting until an acceptable deal is reached by all and until all uncertainties are resolved is not viable for risks such as climate change, if irreversible consequences are to be avoided for future generations. 

Conclusion 

The principles discussed above for global collective action are essential in a world where increasingly more complex and interconnected risks will continue to emerge. Failure to mitigate and adapt to climate change, for example, will continue to increase the risk of more frequent and severe weather disasters, displaced populations, and spread of contagious diseases. The resulting water/food insecurity and displaced populations will add to the problems of fragility and conflict. Increased fiscal and financial costs of disasters will affect health and resilience of financial institutions and sovereigns, with negative feedback loops compounding the adverse consequences of the other global risks. Failures to see these interconnections will not only undermine the efforts to prepare for the risks but also complicate their management when risks materialize, highlighting the need for systematic, proactive and integrated risk management at local and international levels.