Public good agreements under the weakest-link technology

Marzo 2016
Instituto de Políticas y Bienes Públicos (IPP) CSIC, Working Paper. 2016-02

Alejandro Caparrós & Michael Finus

We analyze the formation of public good agreements under the weakest-link technology. Coordination of and cooperation on migration policies, money laundering measures and biodiversity conservation efforts are prime examples of this technology. Whereas for symmetric players, policy coordination is not necessary, for asymmetric players cooperation matters but fails, in the absence of transfers. In contrast, with an optimal transfer scheme, asymmetry may not be an obstacle but an asset for cooperation, with even the grand coalition being stable. We characterize various types and degrees of asymmetry and relate them to the stability of agreements and associate gains from cooperation.