© Randall W. Stone, 2002 After Hegemony I Robert O. Keohane

© Randall W. Stone, 2002 Overview I. The concept of hegemony II. Repeated prisoner’s dilemma, regimes, and international cooperation III. Assessment

© Randall W. Stone, 2002 International cooperation as a public good Payoff i NC C n Equilibrium? All free ride K group

© Randall W. Stone, 2002 The case of hegemony Payoff i NC C n Equilibrium? Hegemon contributes All others free ride

© Randall W. Stone, 2002 After hegemonic decline Payoff i NC C n Equilibrium? Everyone free rides

© Randall W. Stone, 2002 Implications International hegemony is beneficial –Property rights –Security –Transaction costs The “weak” exploit the “strong” –Burden sharing in NATO –MFN in GATT Hegemonic decline threatens the system

© Randall W. Stone, 2002 Cases: Britain 19 th Century Repeal of the 1815 Corn Law in 1846 Market opening strategies –Bilateral MFN negotiations with Scandinavia, France & U.S. –Imperialism Market creation Protection for property Reduction of risk for investors

© Randall W. Stone, 2002 Cases: Britain 19 th Century Financial system –Gold standard, international reserve currency –Free capital market –Lender of last resort

© Randall W. Stone, 2002 Cases: Britain 20 th Century Decline after WWI –Abandon the gold standard –Protectionism –Imperial preferences as a discriminatory trade bloc

© Randall W. Stone, 2002 Cases: United States during the depression Smoot-Hawley Act of 1930 Reluctant lender of last resort –J.P. Morgan and the New York Fed Abandon the gold standard (1934)

© Randall W. Stone, 2002 Cases: United States after WWII 1944 Bretton Woods –International Monetary Fund (IMF) –World Bank (IBRD) Trade: ITO  GATT Marshall Plan (ERP)  OECD Oil producers’ regime –Low prices –Price stability

© Randall W. Stone, 2002 U.S. decline? Rise of OPEC Departure from the gold standard 1971 –Triffin’s paradox –Vietnam War Protectionism, NTBs, VERs Just two cases?

© Randall W. Stone, 2002 Theoretical problems How do you motivate the hegemon? –The U.S. was a potential hegemon before WWII Wrong or tautological? –Only the crude theory makes predictions’ –The nuanced theory is tautological Hegemonic temptations –Impose optimal tariffs –Unilateral macroeconomic policy –Exploit reserve status of the currency

© Randall W. Stone, 2002 Public goods Non-rival Non-excludable

© Randall W. Stone, 2002 Public goods GATT/WTO –Members only –MFN status is a public good by design IMF –Members only –But, benefits to net contributors are public: Systemic stability, free trade, capital flows Oil –Suez crisis of 1954

© Randall W. Stone, 2002 Public goods In any regime, enforcement is a public good Temptations to cut a deal Need a threat to punish the punishers Exclusion itself may be the public good

© Randall W. Stone, 2002 Collective action in repeated games Small groups substitute for hegemons There is more “cooperation,” in Keohane’s terms—mutual adjustment Cooperation may improve because hegemons can more credibly threaten to defect after decline –U.S.-Japanese trade in the ‘80s –U.S.-EC on NTBs  Uruguay Round