After Hegemony I

Robert O. Keohane

Randall W. Stone, 2002

Overview
I. The concept of hegemony
II. Repeated prisoners 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

Payoffi

n
Equilibrium? Hegemon contributes
All others free ride
Randall W. Stone, 2002

After hegemonic decline

NC

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
Triffins 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
Keohanes termsmutual 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