Climatic changes, population growth, and economic scarcity alone and together create shared problems that can be tackled effectively through cooperation and coordination. Perhaps because cooperation and coordination is fragile and easily breaks down, human societies also provide individual solutions for shared problems, like private means of transportation and protection (e.g. gun ownership), or privatized healthcare and retirement planning. What remains unknown is whether and how the availability of individual solutions, and the concomitantly reduced co-dependence on others, affects free-riding on others’ cooperation on the one hand, and the efficient creation of public goods on the other. This we examined using a new experimental paradigm in which groups of individuals faced a shared problem and could use personal resources to solve it either individually or collectively. Across different cost-benefit ratios of solving the shared problem individually vs. collectively, individuals display a remarkable tendency towards group-independent, individual solutions. Such ‘individualism’ leads to inefficient resource allocation and coordination failure. Only when cooperation can save more than 70% of the resources, groups start to coordinate on collective action. Peer punishment helps groups to coordinate on the more efficient collective solution but also leads to wasteful punishment feuds between ‘individualists’ and ‘collectivists’. Our results indicate that societal and economic innovations that reduce co-dependence and reciprocity concerns can create a “modern tragedy of the commons.” In the presence of individual solutions to shared problems, such as those triggered by climate change and population growth, societies not only need to find solutions to the free-rider problem but also need to find a balance between self-reliance and collective efficiency.