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Game Theory and Institutional Entrepreneurship: Transfer Pricing and the Search for Coordination International Tax Policy
Author(s) -
Radaelli Claudio M.
Publication year - 1998
Publication title -
policy studies journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.773
H-Index - 69
eISSN - 1541-0072
pISSN - 0190-292X
DOI - 10.1111/j.1541-0072.1998.tb01935.x
Subject(s) - dilemma , prisoner's dilemma , coordination game , institutionalisation , game theory , transfer pricing , context (archaeology) , entrepreneurship , economics , tax policy , policy transfer , coordination failure , economic system , public economics , tax reform , microeconomics , political science , public administration , finance , law , paleontology , philosophy , epistemology , multinational corporation , biology
Coordination in international tax policy is extremely problematic. Economists and political scientists have explained this lack of coordination by arguing that tax competition triggers a prisoner's dilemma. In this article I argue that not all international tax policy can be reduced to the prisoner's dilemma syndrome. Transfer pricing policy, the object of this study, can be modeled as a coordination game. By drawing upon game theory and new institutional analysis, I argue that institutional entrepreneurs who decide to play their favorite option first can facilitate the emergence of international policy coordination. This idea is examined in the context of the creation of the new Organization for Economic Cooperation and Development rules on transfer pricing. The conclusion is that coordination emerges in transfer pricing policy through a process of conflictual institutionalization.