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Subjective Beliefs in International Agreements

Doruk İriş (), Sungwoo Im () and Hyeonggyun Ko ()
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Sungwoo Im: Department of Economics, Sogang University, Seoul
Hyeonggyun Ko: Department of Economics, Sogang University, Seoul

No 2010, Working Papers from Research Institute for Market Economy, Sogang University

Abstract: We study the impact of countries’ subjective beliefs, i.e., pessimism and optimism, on international agreements to provide global public goods. Under linear payoffs, we find that while pessimism could decrease signatories’ efforts, it can also increase the coalition size. Optimism yields the opposite effects. Using an objective welfare criterion, signatories are typically worse off but non-signatories could be better off. As a result, despite the bias the social welfare may increase. When some countries have identical subjective beliefs (optimistic or pessimistic) and the rest have objective beliefs, the proportion of subjective signatories strongly affects signatories’ effort level. A stable coalition may consist of countries with one type of beliefs or a mixture of types. If it consists of only type, then this type is the relatively more optimistic type.

Keywords: Coalition formation; International agreements; Global Public Goods; Subjective beliefs; Optimism; Pessimism (search for similar items in EconPapers)
JEL-codes: D80 D90 Q54 H87 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2020
New Economics Papers: this item is included in nep-gth
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