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It is widely known that Governments intervene in economic matters, not only domestically but also worldwide. In this case costs and benefits are no longer exclusively national, and the policies to correct distortions and achieve other objectives also may have international repercussions. Once these considerations are taken into account, it is not clear that governments acting independently, even if they do follow their principles, will succeed in achieving their objectives. One way to address this issue is to ask, first, under what circumstances countries and their governments, acting optimally by their own criteria, can be left to their own devices. That is, under what conditions will independent national governments, setting policies in their own separate interests, achieve a world-wide configuration of policies that will be optimal for the world as a whole, in the sense that it cannot be unambiguously improved upon by another policy configuration. Preliminary analysis suggests that independent national policies will be optimal only if at least the following two conditions are met: 1. The market failures, distortions, or non-economic objectives that are addressed by government policies are local, in the sense that their costs and their benefits, as well as the behaviors that cause them, are confined to the same national economy. 2. The countries that set policies to deal with these problems are small in world markets, in the sense that the policies of the individual countries do not have perceptible effects on world prices. Under these circumstances, it appears to be the case that if every country sets its own policies, taking the policies of other countries as given, then the collective outcome for the world will be internationally Pareto Optimal in terms of national objectives. That is, no other configuration of national policies could raise the
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