Abstract
From 1963 to 1989, the International Coffee Agreement controlled world trade in coffee. Like an export cartel, the organization included coffee exporters and importers as members. This paper seeks to understand the behavior of the ICA by treating it as an optimizing entity, which from social choice theory we know to be inherently troublesome. A social choice rule is specified for the ICA that is virtually implementable in Nash equilibrium. The empirical results provide arationalizing argument for the ICA, in the sense that if it sought to maximize the specified criterion function, we would expect it to behave precisely as it did behave.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Abreu, Dilip, and Arunava Sen (1991) “Virtual Implementation in Nash Equilibrium,”Econometrica,59, 997–1021.
Akiyama, Takamasa, and Panayotis N. Varangis (1990) “The Impact of the International Coffee Agreement on Producing Countries,”World Bank Economic Review,4, 157–173.
Arrow, Kenneth J. (1963)Social Choice and Individual Values. New Haven: Yale University Press [First edition 1951, New York: John Wiley and Sons].
Buchana, James M. (1954) “Social Choice, Democracy, and Free Markets,”Journal of Political Economy,62, 114–123.
Buchanan, James M. (1954) “A Contractarian Paradigm for Applying Economic Theory,”American Economic Review,65, 225–230.
Cramton, Peter C., and Thomas R. Palfrey (1990) “Cartel Enforcement with Uncertainty about Costs,”International Economic Review,31, 17–47.
d'Aspremont, Claude, Alexis Jacquemin, Jean Jaskold Gabszewicz, and John A. Weymark (1983) “On the Stability of Collusive Price Leadership,”Canadian Journal of Economics,16, 17–25.
Donsimoni, Marie-Paule (1985) “Stable Heterogeneous Cartels,”International Journal of Industrial Organization,3, 451–467.
Donsimoni, Marie-Paule, N.S. Economides, and H.M. Polemarchakis (1986) “Stable Cartels,”International Economic Review,27, 317–327.
Fisher, Bart S. (1972)The International Coffee Agreement: A Study in Coffee Diplomacy. New York: Praeger Publishers.
Gibbard, A. (1973) “Manipulation of Voting Schemes: A General Result,”Econometrica,41, 587–601.
Gilbert, Christopher L., (1987) “International Commodity Agreements: Design and Performance,”World Development,15, 591–616.
Gordon-Ashworth, Fiona (1984)International Commodity Control: A Contemporary History and Appraisal. New York: St. Martin's Press.
Karp, Larry S., and Jeffrey M. Perloff (1993) “A Dynamic Model of Oligopoly in the Coffee Export Market,”American Journal of Agricultural Economics,75, 448–457.
Marshall, C.F. (1983)The World Coffee Trade: A Guide to the Production, Trading and Consumption of Coffee. Cambridge: Woodhead-Faulkner.
Maskin, Eric (1977) “Nash Equilibrium and Welfare Optimality,” mimeo, MIT.
Maskin, Eric S. (1985) “The Theory of Implementation in Nash Equilibrium: A Survey,” in Leonid Hurwicz, David Schmeidler, and Hugo Sonnenschein, eds,Social Goals and Social Organization: Essays in Memory of Elisha Pazner. Cambridge: Cambridge University Press.
Matsushima, H. (1988) “A New Approach to the Implementation Problem,”Journal of Economic Theory,45, 128–144.
Moore, John (1992) “Implementation, Contracts, and Renegotiation in Environments with Complete Information,” in Jean-Jacques Laffont, ed,Advances in Economic Theory: Invited Papers for the Sixth World Congress of the Econometric Society, Vol. I. Cambridge: Cambridge University Press.
Osborne, D.K. (1976) “Cartel Problems,”American Economic Review,66, 835–844.
Palfrey, Thomas R. (1992) “Implementation in Bayesian Equilibrium: The Multiple Equilibrium Problem in Mechanism Design,” in Jean-Jacques Laffont, ed,Advances in Economic Theory: Invited Papers for the Sixth World Congress of the Econometric Society, Vol. I. Cambridge: Cambridge University Press.
Pieterse, M.Th.A., and H.J. Silvis (1988)The World Coffee Market and the International Coffee Agreement. Wageningen, the Netherlands: Wageningen.
Porter, Robert H. (1983) “Optimal Cartel Trigger Price Strategies,”Journal of Economic Theory,29, 313–338.
Roberts, Kevin (1985) “Cartel Behaviour and Adverse Selection,”The Journal of Industrial Economics,33, 401–413.
Ross, Thomas W. (1992) “Cartel Stability and Product Differentiation,”International Journal of Industrial Organization,10, 1–13.
Rothschild, R. (1990) “The Impact of Tariffs and Quotas on Collusion in International Cartels,”The Manchester School,63, 105–119.
Satterthwaite, Mark A. (1975) “Strategy-Proofness and Arrow's Conditions: Existence and Correspondence Theorems for Voting Procedures and Social Welfare Functions,”Journal of Economic Theory,10, 187–217.
Sen, Amartya (1986) “Social Choice Theory,” in Kenneth J. Arrow and Michael D. Intriligator, eds,Handbook of Mathematical Economics. Amsterdam: North-Holland.
Stigler, George J. (1964) “A Theory of Oligopoly,”Journal of Political Economy,72, 44–61.
United States Department of Agriculture (1985) “World Coffee Situation,” Circular Series FCOF 1–85, January.
United States Department of Agriculture (1987) “World Coffee Situation,” Circular Series FCOF 1–87, February.
United States Department of Agriculture (1992) “World Coffee Situation,” Circular Series FCOF 3–92, December.
Wrigley, Gordon (1988)Coffee. New York: Longman Scientific and Technical.
Zhou, Lin (1991) “Impossibility of Strategy-Proof Mechanisms in Economies with Pure Public Goods,”Review of Economic Studies,58, 107–119.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Coggins, J.S. Rationalizing the International Coffee Agreement virtually. Rev Ind Organ 10, 339–359 (1995). https://doi.org/10.1007/BF01027079
Issue Date:
DOI: https://doi.org/10.1007/BF01027079