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
NC
C
Payoffi
K group
n
Equilibrium? All free ride
© Randall W. Stone, 2002
The case of hegemony
NC
C
Payoffi
n
Equilibrium? • Hegemon contributes
• All others free ride
© Randall W. Stone, 2002
After hegemonic decline
NC
C
Payoffi
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 19th 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 19th Century
• Financial system
– Gold standard, international reserve
currency
– Free capital market
– Lender of last resort
© Randall W. Stone, 2002
Cases: Britain 20th 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
© Randall W. Stone, 2002