Difference between revisions of "Benjamin Cohen on the problems of International Monetary Cooperation"
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2) ''Magnitude of costs'' --> marginal cost of efforts and time needed exceeds the marginal benefit of coordination. Although Cohen acknowledges that creating an explicit framework for cooperation (=set of rules) could minimize this cost, according to him, the loss of states's autonomy entailed would lessen their incentives to embrace that framework. | 2) ''Magnitude of costs'' --> marginal cost of efforts and time needed exceeds the marginal benefit of coordination. Although Cohen acknowledges that creating an explicit framework for cooperation (=set of rules) could minimize this cost, according to him, the loss of states's autonomy entailed would lessen their incentives to embrace that framework. | ||
| − | 3) ''Time-inconsistency'' --> risk of unilateral defection since enforcement mechanisms are too weak to prevent a state from violating agreements. | + | 3) ''Time-inconsistency'' --> risk of unilateral defection since enforcement mechanisms are too weak to prevent a state from violating agreements. He also notes that, according to many specialists, the risk of defection isn't paramount because of the importance of additional factors such as reputation, credibility, and historical and institutional context. |
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| + | 4) ''Distortion of incentives'' | ||
Revision as of 00:33, 25 September 2010
This page is an attempt to summarize Benjamin Cohen's essay entitled "The Triad and the Unholy Trinity: Problems of International Monetary Cooperation."
Cohen starts with a very simple fact: "international monetary cooperation {...} is a good thing but difficult to sustain." [1] or him, the reason for this difficulty lies in the incompatibility of the three key desiderata of government, namely the exchange-rate stability, the capital mobility and the national policy autonomy. Clearly, he asserts that this "Unholy Trinity" is responsible for the shirking of states vis-à-vis their collective commitments to monetary cooperation.
1. The Case for Policy Cooperation:
After briefly presenting his thesis, he first defines cooperation as "a mutual adjustment of national-policy behaviour in a particular issue-area, achieved through an implicit or explicit process of inter-state bargaining."[2]Synonyms include such words as "coordination", "joint" and "collective decision-making." He then goes on and underlines the undeniable evidence that there is "an intensified interdependence across much of the world economy" [3] which then leads to "spillover effects", or foreign repercussions. Those externalities show a lessened insulation that can keep a given state from achieving its macroeconomics objectives. The existence of those spillover effects means that each government has partial control over the actions of others.
The study of cooperation is thus a very important aspect of IPE scholarship nowadays. Cohen further writes that policy coordination may be used to pursue at least two sets of goals, both derived from structural and policy interdependence.
a) policy-optimising, where cooperation is a means to achieve individual policy. b) regime-preserving or public-goods, where states cooperate to pursue broader collective goals.
But he then lists five major issues related to policy coordination (=cooperation) that have been raised by many analysts:
1) Magnitude of gains --> small externalities for foreign states means small benefits of cooperation.
2) Magnitude of costs --> marginal cost of efforts and time needed exceeds the marginal benefit of coordination. Although Cohen acknowledges that creating an explicit framework for cooperation (=set of rules) could minimize this cost, according to him, the loss of states's autonomy entailed would lessen their incentives to embrace that framework.
3) Time-inconsistency --> risk of unilateral defection since enforcement mechanisms are too weak to prevent a state from violating agreements. He also notes that, according to many specialists, the risk of defection isn't paramount because of the importance of additional factors such as reputation, credibility, and historical and institutional context.
4) Distortion of incentives
