The Rational Design of International Institutions
Published online by Cambridge University Press: 09 July 2003
Why do international institutions vary so widely in terms of such key institutional features as membership, scope, and flexibility? We argue that international actors are goal-seeking agents who make specific institutional design choices to solve the particular cooperation problems they face in different issue-areas. In this article we introduce the theoretical framework of the Rational Design project. We identify five important features of institutions—membership, scope, centralization, control, and flexibility—and explain their variation in terms of four independent variables that characterize different cooperation problems: distribution, number of actors, enforcement, and uncertainty. We draw on rational choice theory to develop a series of empirically falsifiable conjectures that explain this institutional variation. The authors of the articles in this special issue of International Organization evaluate the conjectures in specific issue-areas and the overall Rational Design approach.
- The Rational Design of International Institutions
- International Organization , Volume 55 , Issue 4 , Autumn 2001 , pp. 761 - 799
- Copyright © The IO Foundation 2001
As this project came to fruition, we received valuable input from many sources. We thank Kenneth Abbott, George Downs, James Fearon, Phillip Genschel, Charles Glaser, Lloyd Gruber, Miles Kahler, Robert Keohane, Dan Lindley, Lisa Martin, Ken Oye, Beth Yarbrough, Alexander Thompson, Mark Zacher, and especially Brian Portnoy, who participated in one or more of the conferences leading up to this volume. Jeffrey Smith, Ryan Peirce, Marc Trachtenberg, David Laitin, Joni Harlan, and Jama Adams provided other valuable comments, as did the participants at the Program on International Politics, Economics, and Security (PIPES), University of Chicago, where this project began. Students who participated in Barbara Koremenos' undergraduate seminar at UCLA, “International Cooperation,” provided valuable feedback. We also thank the contributors for their efforts, not only on their individual articles but also on the design of the project as a whole. James Morrow, Ronald Mitchell, Peter Rosendorff, Robert Pahre, and especially Andrew Kydd contributed greatly to the project. We received invaluable criticism, prodding, and support from two anonymous reviewers, from the editors of IO, and from Lynne Bush. We thank the University of Chicago's Council on Advanced Studies on Peace and International Cooperation for funding support and the Harris Graduate School of Public Policy Studies for hosting the Rational Design conferences. Finally, we thank Loch Macdonald, Barbara Koremenos' neurosurgeon, who was there when we needed him.
1. See Abbott et al. 2000; and Koremenos 2000.
2. For related definitions of international institutions, see Keohane 1984; and Young 1994.
3. Martin and Simmons assess past work on international institutions and propose an agenda focused on explaining causal mechanisms and institutional effects. Martin and Simmons 1998. Their framework complements ours and shows how rational choice can address other important empirical questions.
4. The early issues of International Organization, for example, focused on describing newly formed organizations and publicizing their rules and votes.
5. Krasner 1983.
6. See Oye 1986; and Axelrod 1984.
7. Key works are Krasner's, Stephen edited volume International Regimes (1983)Google Scholar and Keohane's, Robert After Hegemony (1984)Google Scholar. An excellent early overview is Haggard and Simmons 1987. Several commentators have noted that the field has had less and less to say about formal international organizations. See Rochester 1986; and Abbott and Snidal 1998.
8. See Friedman 1971; and Fudenberg and Maskin 1986.
9. Notable exceptions are crises where immediate incentives overwhelm longer-term considerations. We set such situations aside.
10. See Snidal 1985; and Stein 1983.
11. See Krasner 1991; Morrow 1994c; and Fearon 1998.
12. See Oye 1986; and Lipson 1986 for an application.
13. This point was foreshadowed by Downs, Rocke, and Siverson in their analysis of arms races, and by Downs and Rocke in their game-theoretic analysis of the limits to cooperation. See Downs, Rocke, and Siverson 1986; and Downs and Rocke 1990.
14. See Keohane 1984; and Morrow 1994c.
15. On noise, see Downs and Rocke 1990. On large numbers, see Pahre 1994.
16. See Keohane 1984; and Axelrod and Keohane 1986.
17. See Chayes and Chayes 1995; and Mitchell 1994.
18. Our proposed conjectures are consistent with an evolutionary perspective that treats rational designs as superior in the sense of providing greater benefits to participants, even if participants are unwitting beneficiaries. Miles Kahler provides an excellent overview and discussion of the relationship between evolutionary and rational theories of international institutions. Kahler 1999. The two approaches begin to align through such concepts as “learning” and “imitation” as key factors underlying institutional development.
19. Of course, many efforts at institutional design fail. States may misunderstand the circumstances they face or wrongly anticipate how actors will respond to institutional innovations, or simply make mistakes.
20. See Schrader 1996.
21. The converse is not true, and not all equilibria are institutions as we define them. In particular we exclude equilibria resulting from tacit bargains and implicit arrangements that arise without negotiation.
22. See Calvert 1995; Morrow 1994c; and Snidal 1997.
23. A parallel and important implication within rational institutional design is that all relevant “margins” of choice must be considered. Barzel 1989. In John Richards' analysis of international airline regulation in this volume, for example, effective agreements on airline fares also require that airlines be prohibited from competing on other margins, such as food quality or seat comfort.
24. Haas 1980.
25. Moravcsik 1991.
26. See Kenen 1995; and Moravcsik 1998.
27. Oye 1986.
28. Alternatively, states will not waste time designing institutions that will not be enforced by their own incentives.
29. In particular, once the games are complicated even slightly, the clean distinctions among them break down. When Prisoners' Dilemma repeats through time, for example, multiple equilibria emerge, and the supergame contains distributional problems. Similarly, recurring Battle of the Sexes problems create incentives for some states to shift the prevailing equilibrium.
30. See Krasner 1991; and Grieco 1988.
31. James Fearon makes a parallel argument that, at a sufficiently general level, all problems in international relations have a common strategic structure. Fearon 1998. States must choose among the range of available cooperative arrangements and ensure that participants will adhere to the chosen arrangement. We label these the “distribution problem” and the “enforcement problem,” respectively.
32. We asked contributors to examine these independent variables but also invited them to consider others; thus the project as a whole is open to a wider set of independent variables, albeit in a more inductive way.
33. Krasner 1991.
34. Fearon 1998.
35. Webb 1991.
36. Snidal 1994.
37. Levy 1993.
38. We do adopt standard terminology in using the term uncertainty instead of risk. See, for example, Kreps 1990; Hirshleifer and Riley 1992; and Osborne and Rubinstein 1994.
39. Interaction effects may be positive, negative, or zero—that is, when two “problems” arise together in a given context, their joint effect may be less than either problem individually (a large negative effect) or more than either problem individually but less than the sum of the two (a small negative effect). Alternatively, the combined effect may equal the sum of the two individual effects (a zero interaction effect) or be greater than the sum of the individual effects (a positive interaction effect).
40. Koremenos 1999a.
41. We thank Jim Morrow for this example, which corresponds to a comparison of conjectures M1 and M2.
42. We focus on states as key actors, though most of the analysis can be generalized to nonstate actors.
43. Of course, harsher punishment strategies can be used to support greater cooperation when the shadow of the future is short; however, such strategies are subject to problems of renegotiation proofness. See Downs and Rocke 1995; and Abreu, Pearce, and Stacchetti 1986.
44. For a general discussion of transaction costs, see Williamson 1985. For an important application to international politics, see Lake 1996. Unlike Williamson, we do not assume that the presence of transaction costs implies bounded rationality. Transaction costs refers to the costs of making an agreement and operating it, not of doing what the agreement is designed to do (for example, if two states agree to jointly build a dam, the costs of negotiating and administering the agreement are transactions costs, but the costs of building the dam are not).
45. See Williamson 1985; and Yarbrough and Yarbrough 1992.
46. Lake 1996.
47. Morrow 1991.
48. Olson 1965.
49. Oye 1986. Pahre points out that under strict public good conditions, such restrictions are suboptimal. Pahre 1994. He demonstrates the possibility of large-n multilateral cooperation under certain conditions. But unlike conjecture M1, his equilibrium is vulnerable to bad information, and it needs other institutional supports that we discuss under conjectures C1–C3.
50. Buchanan 1965.
51. Snidal 1979.
52. Downs and Rocke 1995, 126.
53. Spence 1974 illustrates how education provides a costly signal of the quality of prospective employees to employers. Spence 1974. Fearon applies signaling models to crisis bargaining. Fearon 1994. See also Kydd 2000a,b.
54. See Waltz 1979; and Grieco 1988.
55. Snidal 1991.
56. We do not claim that heterogeneity promotes cooperation; in some cases it promotes distributional differences and conflict. Our position is that linkage provides an institutional means to harness these differences in a mutually beneficial way. Also, having a larger number may promote heterogeneity in capabilities (which we do not address here). For an insightful discussion of these points that also relates heterogeneity to institutional design, see Martin 1994.
57. Sebenius 1983, 314.
58. In some cases, membership may act as a mediating variable through which number affects endogenous variables such as scope. Even in such cases, number may also have direct effects, perhaps due to asymmetries among the parties, for which member is not a mediating variable. This complexity is typical in a system with multiple dependent (or endogenous) and independent (or exogenous) variables. Our conjectures focus on the impact of individual independent variables' main effects and thus hold the other independent variables constant, but not the other dependent variables.
59. Tollison and Willett 1979.
60. Conjectures S1 and S2, though distinct, share a similar logic. In each case differences among the actors lead them to expand the issue set in order to find a better outcome. In this way, distributional differences (which cause conflict within issues) are the engine of efficiency gains (across issues). For an instructive analogy in the social-choice literature on logrolling, see Mueller 1989. Logrolling, however, occurs within an institutional framework and thus can lead to Pareto-inefficient moves. Riker and Brams 1973. We would not expect this in the design of new institutional arrangements.
61. Busch and Koremenos 2001a.
62. Raiffa 1982.
63. See Hardin 1982; McGinnis 1986; and Bernheim and Whinston 1990. A more nuanced version of this conjecture would consider the interrelationships among the issues, for example, whether they are substitutes or complements. See Spagnolo 1997.
64. Busch and Koremenos 2001a.
65. Thus our independent variables may affect the costs as well as the benefits of scope.
66. Kreps 1990.
67. Downs and Rocke 1990.
68. Axelrod and Keohane 1986.
69. Milgrom, North, and Weingast 1990.
70. See Morrow 1994c; and Farrell and Gibbons 1989. The parallel relationship that centralization increases to resolve uncertainty about other states' preferences or types is also likely to hold. The very willingness to allow centralized inspection by an organization like the IAEA contains useful information about a state's goals even before it generates any information about its behavior.
71. See Keohane 1984; and Martin 1992a.
72. Abbott and Snidal 1998.
73. Calvert 1995.
75. See Bates 1997; and Koremenos 1999a.
76. See Genschel 1997; and Abbott and Snidal 2001.
77. Fudenberg and Maskin 1986.
78. Bendor and Mookherjee 1987 and 1997. Bendor and Mookherjee offer a differentiated view of centralization and show how a combination (federalism) of centralized and decentralized arrangements is most effective for the problem they are examining. Ostrom provides evidence of how small levels of centralization can promote otherwise decentralized cooperation. Ostrom 1990.
79. Using similar logic, Lake argues that “the probability that the partner will engage in opportunistic behavior decreases with relational hierarchy.” Lake 1996, 14. In other words, as the expected costs of opportunism increase, hierarchy will be the preferred governance structure.
80. Schwartz and Tomz show that the value of centralization does not always increase monotonically with the capacity of the central agent. Schwartz and Tomz 1997. In their model, an intermediate level of monitoring means that some shirking will occur so that less talented actors are detected and excluded from the group.
81. Posner 1999.
82. Martin 1992b.
83. Number here refers to members of the institution who are eligible to have a say in its operations. This is a good example of our earlier observation that a prior institutional decision may be treated as exogenous in considering the adoption of other rules. Alternatively, membership and control rules may be determined together such that, for example, a decision to have a large membership is compatible with one set of control rules, and a decision to have a small membership is compatible with another set of control rules.
84. Hosli 1993.
85. A more sophisticated analysis would also consider the policy preferences of governments. Garrett and Tsebelis show how this leads to a consideration of a broader set of control institutions (for example, the Commission and the Council of Ministers) and to rules regarding other forms of control, such as agenda setting. Garrett and Tsebelis 1996.
86. Barry 1979. See also the Rae-Taylor theorem in Rae 1969; and Taylor 1969. Mueller provides an excellent overview of the issues and a comparison of majority/unanimity rules. Mueller 1989. Buchanan and Tullock argue for the virtues of unanimity in promoting efficient outcomes when there are no transaction costs. Buchanan and Tullock 1962. As decision-making costs increase—including the costs of preference revelation (which corresponds to uncertainty about preferences)—the case for smaller majorities grows.
87. Shubik 1982.
88. Winter 1996.
89. Weingast 1979.
90. Collie 1988.
91. We proposed but later dropped the related conjecture that “individual control (to block undesirable outcomes) increases with the severity of the distributional problem” because it was logically equivalent to conjecture V3. The impact of distribution flowed fundamentally from uncertainty about the distribution rather than from known distributional consequences, which could be dealt with in other institutional ways. The deleted conjecture was strongly supported in the empirical studies, so dropping it does not bias the results in our favor.
92. Downs and Rocke 1995.
93. Koremenos 2001.
94. This kind of flexibility also solved important distributional issues, the subject of conjecture F2.
95. Abbott and Snidal 2000.
96. Fearon 1998.
97. Koremenos 2001.
98. Busch and Koremenos 2001b.
99. Hardin 1992.
100. Koremenos 1999a.
101. For a theoretical analysis with corresponding empirical support, see Koremenos 2000.
102. The choice among alternatives may also depend on interactions with other independent variables. Thus, the WTO's move toward more centralized dispute resolution was related to the large number of states involved.
103. This problem has been central to the analysis of macroeconomic policy in open economies, especially the relationship between the number of policy goals and the number of policy instruments. Mundell 1962.
104. This problem would bias the empirical results against our bivariate conjectures.
105. Aggarwal 1985.