Issue Linkage, Credible Delegation, and Policy Cooperation

Abstract

This Paper, a thorough revision of Spagnolo (1996), addresses the following questions: What is the optimal design for a set of self-enforcing international policy agreements? How many and which issues should each agreement regulate? Are GATT's constraints on issue linkage (cross-retaliation) welfare-enhancing? To facilitate international cooperation should governments keep policy issues under centralized control, or should they delegate them to independent agencies (e.g. central banks)? In the second case, which issues should be delegated? Finally, institutions allowing governments to credibly delegate policy choices (e.g. to 'conservative' central bankers) are good or bad for international policy cooperation?

Keywords: Cooperation, cross-border spillovers, delegation, international agreements, international institutions, linkages, policy coordination

JEL Classification: E61, F13, F42, H77