In international relationships, often the interacting agents are countries. For example, countries negotiate, sign agreements, give loans to each other, trade, etc. Thus it is interesting whether these interactions are analyzed analogously to economic interactions between individuals, starting with the assumption that each country has a utility function.

Utility functions of countries are mentioned the context of a fair division procedure called adjusted winner. This procedure has been applied (hypothetically) to some international agreements, such as the Israeli-Egypt peace treaty, the Spratley islands disputes, and the Panama Canal treaty. In each of these cases, the authors assume that each of the two involved countries has a cardinal utility function over the debated issues, and apply the procedure to find a fair and efficient agreement.

My question is: are there other papers in international economics that assume such 'utility function' of countries?

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    $\begingroup$ Brief comment: Modelling the "utility function" of a country is quite a reduced-form approach. This could be the utility function of a representative agent of a population with identical utility functions; it could also be the utility of the median voter; it could be the payoff function of a leader who is either a dictator or elected and in the latter case they may want to ensure being reelected by a diverse population. What kind of underlying model are you interested in? $\endgroup$
    – Bayesian
    Jun 7 '19 at 9:25
  • $\begingroup$ @Bayesian the models I found so far, in the negotiation and dispute-resolution literature, apparently ignore these distinctions.. I would like to know what other models are common in the literature. $\endgroup$ Jun 7 '19 at 10:40

Caveat: my familiarity with the international agreement literature is limited to that of environmental and resource economics problems.

For those cases instead of a utility function the usual approach is to formulate the problem in terms of costs and benefits for countries' economies as a whole.

When it comes to environmental problems this usually boils down to individual benefits of pollution versus collective damages, or its inverse individual abatement costs versus collective benefits. For resource problems it is individual profits (or consumption) from harvest versus the collective diminishing returns in terms of stock growth or increasing harvest costs.

Active authors in this field are a.o. Scott Barrett, Carlo Carraro, Michael Finus in terms of environment and Marco Lindroos and Pedro Pintassilgo for fisheries.


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