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In this post, I explore why governments may choose policies that align with OECD averages. I have a simple model to examine how uncertainty and risk aversion influence policy decisions that balance domestic needs with international standards.

Introduction

One of my biggest pet peeves about the Korean media is its frequent obsession with aligning various domestic metrics—like wages, the number of doctors, or education spending—with international norms, especially those of the OECD countries. Here’s on example from The Korea Herald:

This fascination with "keeping up with the global Joneses" raises an interesting question: Why do governments feel compelled to match international averages, and how does this influence their policy decisions? In this post, I’ll write down a simple economic model that sheds light on why governments might deliberately steer their policies toward global averages. We’ll think about which factors make certain policies more susceptible to this convergence and discuss how uncertainty and risk aversion play a role.

A Simple Model of Policy Convergence

Let's imagine a government that wants to make its citizens as well-off as possible but also feels the pressure to align its policies with international standards—specifically, the averages of OECD countries. These policies could be anything from tax rates to healthcare spending.

We'll represent the government's policy choices as a set of variables:

• Policy variables: $\mathbf{p}=(p_1,p_2,…,p_n)$ as representing different policy choices (e.g., tax rates, education spending, healthcare investment)
• OECD averages: $\mathbf{\bar{p}} = (\bar{p}_1, \bar{p}_2,…,\bar{p}_n)$ as the average values of each policy among OECD countries.

Government’s Utility Function

I’m now going to assume that the government’s overall satisfaction (utility) depends on two things: