Redistributive Cooperation: Market Failure, Wealth Transfers, and the Basle Accord

Abstract

Theories of international cooperation rely on claims about joint gains to argue that governments create international institutions to mitigate information and enforcement problems and realize efficient solutions. We present a model in which politicians propose international institutions to resolve domestic political dilemmas and suggest that the international institutions they propose are sometimes intentionally redistributive. We apply both approaches to the Basle Accord and conclude that domestic politics rather than international market failure motivated American policymakers to propose international regulation, that through international regulation the United States sought to redistribute income from Japanese to American commercial banks, and that, therefore, the Basle Accord did not offer joint gains. Agreement was reached only after the United States used financial market power to eliminate the regulatory status quo. The Basle Accord is an instance of redistributive cooperation. The case suggests that domestic politics should supplant aggregate benefits in explanations of why governments propose and create international institutions.

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