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Costly Adjustments, Markets and International Reassurance

Published online by Cambridge University Press:  06 March 2012

Johannes Urpelainen
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Abstract

Two leaders engaged in international co-operation must each build trust by credibly signalling that they will not exploit the other by defecting at the implementation stage. Previous research does not reveal the difficulty and cost of such international reassurance. The role that costly adjustments by markets play in international reassurance is analysed, showing that fully efficient information revelation can be achieved when market actors under intense competitive pressures undergo sufficiently costly adjustments in expectation of international co-operation. ‘Nice’ leaders can reveal their true preferences simply by saying they intend to co-operate, because ‘mean’ leaders are unwilling to mislead market actors into undergoing futile costly adjustments. However, market imperfections prevent full information revelation unless market actors prefer international co-operation to the status quo.

Type
Research Article
Information
British Journal of Political Science , Volume 42 , Issue 3 , 01 June 2012 , pp. 679 - 704
Copyright
Copyright © Cambridge University Press 2012

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