Globalization and the Logic of International Collective Action
Re-examining the Bretton Woods Institutions
The fixed exchange rate system had been abandoned back in 1971, raising questions at that time about the role of the International Monetary Fund. However, the abandonment of the fixed exchange rate system did not mark an end to crises; rather, they seemed to become both more frequent and of greater depth. When the Bretton Woods institutions were founded, there was a less well-developed theory of collective action that outlined the circumstances under which public, as opposed to private, action was desirable. There was, in particular, a less well-developed theory of market failure, of the circumstances under which markets by themselves did not yield efficient outcomes. This chapter explores the role of the Bretton Woods institutions from the perspective of global public goods and externalities. The discussion begins by focusing on the IMF, simply because there was, in its establishment, a clear vision of a global market failure that it was supposed to address.