Public-Good Theory and Bargaining between Large and Small Countries

Abstract

Olson's theory of exploitation in public-good situations says that large countries are exploited by small ones with regard to the cost-benefit ratio of public goods. The policy implication of this theory is that small countries need not cooperate with large ones about the provision of public goods. With regard to groups that are formed to increase the supply of public goods, the larger the size of the group, the more it will fall short of providing optimal amounts of public goods. This theory has been applied to international organization and supposedly explains why small groups are more successful than large ones in providing themselves with public goods. However, the analysis here shows that large and small countries may exploit one another. This is shown by concentrating on the reaction process in public-good theory, a concept that permits testing of the exploitation thesis. The results demonstrate that mutual exploitation may lead to economic cooperation between large and small countries about public-good supplies. Economic cooperation requires the presence of several public goods; therefore, an organization's success in providing public goods may not necessarily be a function of group size. Instead, success may be a function of the number of public goods the organization supplies.