ECONOMIC-INTEGRATION OF COUNTRIES WITH INTERNATIONAL PUBLIC-GOODS

This paper develops a model of economic integration that is subject to random emergency costs. To mitigate the effects of these disruptions, each country that belongs to a club provides an international public good. This paper incorporates voluntary provision of public goods into a rigorous general equilibrium model of economic integration under uncertainty. It is shown that an increase in the probability of war or the penalty ratio in a club may raise the welfare and the size of the club if risk aversion with respect to private consumption is not so large. (C) 1994 Academic Press, Inc.