International Agreements, Reputational Screening and the Long-Run Interests of the State

Abstract

Incomplete information on the degree to which governments internalize the long-run interests of the state is an essential element of information asymmetry in international relations. A reputational model with such incomplete information captures two observed facts: i. costly activities, among which there may be compliance with the terms of an international agreement, take place even before it formally comes into force, and ii. the parties to an agreement do not always comply with it. International agreements provide information on the level of institutional strength of countries. Such a transparency-increasing effect stems from self-selection into international agreements, which however may be imperfect. Incomplete information in other dimensions, such as the magnitude of future gains following compliance, may or may not generate an equilibrium path where i. and i. are observed: when thinking about the role of asymmetric information in supporting reputational equilibria in international relations, specifying the type of asymmetry matters. To discuss the implications of the model, we consider the case of accession of new member countries to the European Union.