Fighting Communism Supporting Collusion

We develop a simple model to explain why a powerful importer country like the United States may provide political support for international collusive agreements concerning certain imported commodities (e.g., coffee). We show that helping producer countries organize and enforce collusion might be an attractive instrument to advance important geopolitical goals; for example, to reduce the chances that the producer countries will align with a rival global power (e.g., the Soviet Union during the Cold War). Moreover, using this practice, the cost of collusion is shared with other importers (including allies). Thus, collusion might be a superior strategy to foreign aid (a priori a more direct and efficient instrument), which is riddled with free riding problems. The model sheds light on why the United States supported (or failed to support) international commodity agreements for coffee, sugar, and oil during and immediately after the Cold War period.