I haven’t thought about this angle very much, but it seems like a good angle which I didn’t talk about much in the post, so it’s great to see this comment.
I guess the question is whether you can take the model, including the optimal allocation assumption, as corresponding to the world as it is plus some kind of (imagined) quasi-effective global coordination in a way that seems realistic. It seems like you’re pretty skeptical that this is possible (my own inside view is much less certain about this but I haven’t thought about it that much).
One thing that comes to mind is that you could incorporate into the model spending on dangerous tech by individual states for self-defence into the hazard rate equation through epsilon—it seems like the risk from this should probably increase with consumption (easier to do it if you’re rich), so it doesn’t seem that unreasonable. Not sure whether this is getting to the core of the issue you’ve raised, though.
I suppose you can also think about this through the “beta and epsilon aren’t really fixed” lens that I put more emphasis on in the post. It seems like greater / less coordination (generally) implies more / less favourable epsilon and beta, within the model.