Paola Conconi and Carlo Perrone
CSGR Working Paper No. 114/03
We explore the relationship between international policy coordination and domestic policy credibility when both must be self-supporting. Our arguments are presented in the context of a two-country, two-period model of dynamic emission abatement with transboundary pollution, where government policies suffer from a time-consistency problem. In the absence of repeated interaction, any form of coordination – between governments, and between governments and their respective private sectors – improves policy making. Nevertheless, under repeated interaction international policy spillovers can make it possible to overcome the domestic credibility problem; and, conversely, the inability to precommit to policy domestically can help support international policy cooperation.
Keywords: Policy Commitment, Self-Enforcing International Agreements.
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