Fighting Communism Supporting Collusion

86 Pages Posted: 23 Jun 2022 Last revised: 5 Sep 2023

See all articles by Sebastian Galiani

Sebastian Galiani

University of Maryland - Department of Economics

Jose Manuel Paz y Miño

Universidad de Chile

Gustavo Torrens

Indiana university

Date Written: June 13, 2022

Abstract

We develop a simple model to explain why a powerful importer country like the United States may provide political support for international collusive agreements concerning certain commodities (e.g., coffee). This behavior raises questions due to the fact that an importer country should have strong economic incentives to avoid the cartelization of its suppliers. We show that an importer country sometimes helps producer countries organize and enforce collusion to advance important geopolitical goals, e.g., by reducing the chances that the producer countries will align with a rival global power (e.g., the Soviet Union). Moreover, using this practice, a powerful importer country can immediately share the cost of collusion with other importers (including allies). Thus, a powerful importer country may see collusion as a superior strategy to foreign aid (a priori a more direct and efficient instrument), which is riddled with free riding problems. The model sheds light on why the United States supported (or failed to support) international commodity agreements for coffee, sugar, and oil during and immediately after the Cold War period.

Keywords: Collusion, Foreign Aid, International Commodity Agreements, Geopolitics

JEL Classification: L04, F05

Suggested Citation

Galiani, Sebastian and Paz y Miño, Jose Manuel and Torrens, Gustavo, Fighting Communism Supporting Collusion (June 13, 2022). Available at SSRN: https://ssrn.com/abstract=4135570 or http://dx.doi.org/10.2139/ssrn.4135570

Sebastian Galiani (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Jose Manuel Paz y Miño

Universidad de Chile ( email )

Diagonal Paraguay 257
Santiago de Chile
Chile

Gustavo Torrens

Indiana university ( email )

Wylie Hall, 100 S Woodland Ave
Bloomington, IN 47405-7104
United States
8128568131 (Phone)
47405-7104 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
90
Abstract Views
576
Rank
524,241
PlumX Metrics