Lies, Defection, and the Pattern of International Cooperation

This article characterizes how incentives to lie affect international cooperation and the design of cooperation agreements. I study the optimal structure of cooperation agreements in an environment where the costs of cooperation fluctuate over time. Cooperation is complicated by the fact that the costs of cooperation are private information and participants can benefit from lying about them. When the extent of asymmetries of information between the cooperating governments can be measured in terms of the transparency of the political process, democracies face greater contracting opportunities than authoritarian regimes. However, this article shows that even under asymmetries of information, a limited extent of cooperation can be achieved when the design of cooperation agreements recognizes incentives to lie.