Hostname: page-component-586b7cd67f-tf8b9 Total loading time: 0 Render date: 2024-11-25T04:36:55.279Z Has data issue: false hasContentIssue false
  • English
  • Français

A Role for an International Institution: A One-Shot Game-Theoretic Approach

Published online by Cambridge University Press:  17 August 2016

Fernando Pacheco
Fernando Pacheco*
Affiliation:
Universidade Católica Portuguesa
Get access

Abstract

In this paper we use a two-country model of flexible exchange rates to analyse strategic interdependence. Values for the policy instruments are selected from discrete sets, increasing the likelihood of a non-unique Nash equilibrium. Communication between the policy makers becomes very important; we define international institutions as communication devices, since their mission in the context of our model (we are in a one-shot game) is indeed the exchange of some information, either policy proposals or recommendations. We discuss two such devices: direct communication (for instance, a telephone line), and communication through a mediator (an international parliament) that makes policy recommendations to both countries, which are not necessarily followed. The conclusion is that these devices may increase actual or expected welfare levels and ease agreement between decision makers, even in a world where Nash equilibria are efficient.

Type
PART ONE: Theoretical Contributions
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 51 , Issue 3-4 , December 1985 , pp. 241 - 254
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1985 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

I am grateful to A. Steinherr, my thesis supervisor, who greatly inspired my research. I also thank C. Bean, E. de Souza, E. Perée and M. Steel for many helpful comments and suggestions. All errors and shortcomings are my own. The Calouste Gulbenkian Foundation provided financial support, which is gratefully acknowledged.

References

REFERENCES

Aumann, R.J. (1974), Subjectivity and Correlation in Randomized Strategies, Journal of Mathematical Economies 1, pp. 67–96.Google Scholar
Bean, C.R. (1985), The Case for Co-Ordination : Theory and History, Recherches Economiques de Louvain, this issue.Google Scholar
Calvo, G.A. (1977), The Stability of Models of Money and Perfect Foresight : A Comment, Econometrica 45, pp. 1737–1740.Google Scholar
Calvo, G.A. (1979), On Models of Money and Perfect Foresight, International Economic Review, 20, 1, pp. 83–103.Google Scholar
Canzonieri, M.B. and Gray, J.A. (1983), Two Essays on Monetary Policy in an Interdependent World, International Finance Discussion Papers, n° 219.Google Scholar
Cooper, R.N. (1985), Economic Interdependence and Coordination of Economic Policies, in The Handbook of International Economics, vol 2, edited by Jones, R.W. and Kenen, . Amsterdam, North-Holland.Google Scholar
Dornbusch, R. (1976), Expectations and Exchange Rate Dynamics, Journal of Political Economy, 84, 6, pp. 1161–1176.Google Scholar
Eichengreen, B.J. (1985), International Policy Coordination in an Historical Perspective: A View from the Interwar Years, in Buiter, W. and Martson, R. (eds), International Economic Policy Coordination, Cambridge, at the University Press.Google Scholar
Goldfeld, S.M. (1973), The Demand for Money Revisited, Brookings Papers in Economic Activity, 3, pp. 577–646.Google Scholar
Hadley, G. (1961), Linear Algebra. Reading, Mass., Addison-Wesley.Google Scholar
Hamada, K. (1974), Alternative Exchange Rate Systems and the Interdependence of Monetary Policies, in Aliber, R. (ed.) National Monetary Policies and the International Financial System, Chicago, at the University Press.Google Scholar
Hamada, K. (1976), A Strategic Model of Monetary Interdependence, Journal of Political Economy, 84, pp. 677–700.Google Scholar
Hamada, K. (1979), Macroeconomic Strategy and Coordination Alternative Exchange Rates, in Dornbusch, R. and Frenkel, J. (eds.) International Economic Policies, Baltimore, The John Hopkins University Press.Google Scholar
Johansen, L. (1982a), Cores, Aggressivness and the Breakdown of Cooperation, Journal of Economic Behavior and Organization, 3, pp. 1–37.Google Scholar
Johansen, L. (1982b), The Possibility of an International Equilibrium with Low Levels of Activity, Journal of International Economics, 13, pp. 257–265.Google Scholar
Macedo, J.B. (1983), Policy Interdependence under Flexible Exchange Rates, Princeton University, Discussion Papers in Economics, n° 62.Google Scholar
Moulin, H. (1982), Game Theory for the Social Sciences, New york, New York University Press.Google Scholar
Myerson, R.B. (1983), Bayesian Equilibrium and Incentive-Compatibility: An Introduction, Mimeo, Northwestern University.Google Scholar
Oudiz, G. and Sachs, J. (1985), International Policy Coordination in Dynamic Macroeconomic Models, in Buiter, W. and Marston, R. (eds), International Economic Policy Coordination, Cambridge, at the University Press.Google Scholar
Turnovsky, S.J. (1979), Optimal Monetary Policies under Flexible Exchange Rates, Journal of Economic Dynamics and Control, 1, pp. 85–100.Google Scholar