Reciprocal preferences and expectations in international agreements

Abstract

This paper investigates the impact of reciprocal preferences and countries’ fairness-based expectations of each other in the context of international agreements aimed at providing global public goods. Reciprocal countries reward kindness (positive reciprocity) while retaliating against unkind behavior (negative reciprocity). We introduce a model where countries decide not only whether to participate on a coalition but also determine the extent of their effort. We demonstrate that reciprocal preferences can exert both positive and negative effects on the effort of both signatories and non-signatories of a treaty, depending on their expectations of others. In the non-cooperative game, there are three possible Nash equilibria, which depends on the degree of reciprocal concerns and expectations: no contribution, full contribution by all, and an interior solution. In the coalition formation game, if countries have limited yet sufficiently strong reciprocal concerns and low expectations, the grand coalition – where all countries sign the treaty (and exert efficient effort levels) – becomes stable. Interestingly, we find that signatories positively influence non-signatories’ efforts. Anticipating this response, signatories have an additional strategic incentive to increase their efforts, thereby enhancing the overall level of cooperation.