Local Optimization and Systemic Failure: An Analytical Framework of Temporal, Boundary, Level, and Feedback Mismatches

The relationship between local optimization and systemic failure is one of the most explanatory problems in System Logic. An action, an organization, or a policy may achieve optimality within its local system while producing systemic failure at broader spatial or temporal scales. This phenomenon cannot be adequately explained by cognitive bias, temporal myopia, or ethical deficiency. It should be understood as four fundamental mismatches in the evaluative structure of systems: temporal mismatch, boundary mismatch, level mismatch, and feedback mismatch. Building on the first two papers in the System Logic series, this paper analyzes how local optimization transforms into systemic failure. The paper argues that local optimization is not inherently problematic. The problem arises when evaluation boundaries are too narrow, time horizons too short, level relations ignored, and feedback mechanisms closed. Under these conditions, local optimality transforms into systemic failure through cost externalization, depletion of future option space, cross-level imbalance, and feedback blindness. The paper first reviews stakeholder theory, system dynamics, general systems theory, intergenerational justice theory, and the temporal discounting literature, establishing its theoretical positioning in integrating spatial boundaries and temporal ethics. On this basis, it distinguishes four types of mismatch, specifies their structures, mechanisms, and typical cases, and proposes conditions for moving from each mismatch to its corresponding form of adequacy. The paper further argues that systemic failure is not evidence against local optimization but a consequence of local optimization executed within wrong boundaries, wrong time horizons, wrong levels, and wrong feedback structures. The key to addressing systemic failure is therefore not to abandon optimization but to reset its boundary, temporal, level, and feedback conditions. The framework is demonstrated through cases from economics, organizations, society, and ecology, followed by a discussion of theoretical boundaries and falsifiability conditions. The core proposition is that local optimization does not equal systemic adequacy, but when executed within the right structure, local optimization can be consistent with systemic adequacy.