ON THE SUSTAINABILITY OF INTERNATIONAL COORDINATION

The motivation of this paper rests on the attempts by some groups of c ountries to coordinate their macroeconomic policies. Implicit in these attempts is the notion that coordination by at least some countries i s better than zero coordination. We use a dynamic general equilibrium model of international coordination to study the properties of a parti al coordination scheme. We find that, indeed, some coordination is Par eto superior to zero coordination. Although a free-riding incentive pr oblem arises in partial coordination schemes, such schemes are sustain able provided the relative size of the coalition is chosen ''appropria tely.''