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International regimes can be understood as results of rational behavior by the actors—principally states—that create them. Regimes are demanded in part because they facilitate the making of agreements, by providing information and reducing transactions costs in world politics. Increased interdependence among issues—greater ‘issue density’—will lead to increased demand for regimes. Insofar as regimes succeed in providing high quality information, through such processes as the construction of generally accepted norms or the development of transgovernmental relations, they create demand for their own continuance, even if the structural conditions (such as hegemony) under which they were first supplied, change. Analysis of the demand for international regimes thus helps us to understand lags between structural change and regime change, as well as to assess the significance of transgovernmental policy networks. Several assertions of structural theory seem problematic in light of this analysis. Hegemony may not be a necessary condition for stable international regimes; past patterns of institutionalized cooperation may be able to compensate, to some extent, for increasing fragmentation of power.
1 See especially Keohane Robert O., “The Theory of Hegemonic Stability and Changes in International Economic Regimes, 1967–1977,” in Holsti Ole R., Siverson Randolph, and George Alexander, eds., Changes in the International System (Boulder: Westview, 1980); and Cahn Linda, “National Power and International Regimes: The United States and International Commodity Markets,” Ph.D. diss., Stanford University, 1980.
2 Current research on the nineteenth century is beginning to question the assumption that Britain was hegemonic in a meaningful sense. See McKeown Timothy J., “Hegemony Theory and Trade in the Nineteenth Century,” paper presented to the International Studies Association convention, Philadelphia, 18–21 03 1981; and Stein Arthur A., “The Hegemon's Dilemma: Great Britain, the United States, and the International Economic Order,” paper presented to the American Political Science Association annual meeting, New York, 3–6 09 1981.
3 The essential reason for this (discussed below) is that actors that are large relative to the whole set of actors have greater incentives both to provide collective goods themselves and to organize their provision, than do actors that are small relative to the whole set. The classic discussion of this phenomenon appears in Olson Mancur Jr, The Logic of Collective Action: Political Goods and the Theory of Groups (Cambridge: Harvard University Press, 1965).
4 I am indebted to Albert Fishlow for clarifying this point for me.
5 George Alexander L., “Case Studies and Theory Development: The Method of Structured, Focused Comparison,” in Lauren Paul, ed., Diplomacy: New Approaches in History, Theory, and Policy (New York: Free Press, 1979).
6 Lakatos Imre, “Falsification and the Methodology of Scientific Research Programmes,” in Lakatos and Musgrave Alan, eds., Criticism and the Growth of Scientific Knowledge (Cambridge: Cambridge University Press, 1970).
7 Stimulating discussions of microeconomic theory can be found in Shubik Martin, “A Curmudgeon's Guide to Microeconomics,” Journal of Economic Literature 8 (1970): 405–434; and Latsis Spiro J., “A Research Programme in Economics,” in Latsis , ed., Method and Appraisal in Economics (Cambridge: Cambridge University Press, 1976).
8 I am indebted to Alexander J. Field for making the importance of this point clear to me. See his paper, “The Problem with Neoclassical Institutional Economics: A Critique with Special Reference to the North/Thomas Model of Pre-1500 Europe,” Explorations in Economic History 18 (04 1981).
9 Davis Lance E. and Douglass C. North adopt this strong form of rationalistic explanation when they argue that “an institutional arrangement will be innovated if the expected net gains exceed the expected costs.” See their volume, Institutional Change and American Economic Growth (Cambridge: Cambridge University Press, 1971).
10 Two of the classic works are March James and Simon Herbert, Organizations (New York: Wiley, 1958); and Cyert Richard and March James, The Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, 1963).
11 For a discussion of “spontaneous,” “negotiated,” and “imposed” regimes, see Oran Young's contribution to this volume.
12 For a lucid and original discussion based on this obvious but important point, see Harsanyi John, “Measurement of Social Power, Opportunity Costs and the Theory of Two-Person Bargaining Games,” Behavioral Science 7, 1 (1962): 67–80. See also Hirschman Albert O., National Power and the Structure of Foreign Trade (1945; Berkeley: University of California Press, 1980), especially pp. 45–48.
13 Lowry S. Todd, “Bargain and Contract Theory in Law and Economics,” in Samuels Warren J., ed., The Economy as a System of Power (New Brunswick, N.J.: Transaction Books, 1979), p. 276.
14 Fellner William, Competition among the Few (New York: Knopf, 1949).
15 Puchala Donald J., “Domestic Politics and Regional Harmonization in the European Communities,” World Politics 27,4 (06 1975), p. 509.
16 There are exceptions to this generalization, such as Tiebout's “voting with the feet” models of population movements among communities. Yet only one chapter of fourteen in a recent survey of the public-choice literature is devoted to such models, which do not focus on authoritative decision-making processes. See Mueller Dennis C., Public Choice (Cambridge: Cambridge University Press, 1980). For a brilliantly innovative work on “exit” versus “voice” processes, see Hirschman Albert O., Exit, Voice, and Loyalty (Cambridge: Harvard University Press, 1970).
17 Anyone who has thought about Hobbes's tendentious discussion of “voluntary” agreements in Leviathan realizes the dangers of casuistry entailed in applying voluntaristic analysis to politics, especially when obligations are inferred from choices. This article follows Hobbes's distinction between the structure of constraints in a situation, on the one hand, and actor choices, on the other; but it does not adopt his view that even severely constrained choices (“your freedom or your life”) create moral or political obligations.
18 Waltz Kenneth N., Theory of International Politics (Reading, Mass.: Addison-Wesley, 1979).
19 Externalities exist whenever an acting unit does not bear all of the costs, or fails to reap all of the benefits, that result from its behavior. See Davis and North, Institutional Change and American Economic Growth, p. 16.
20 Olson, The Logic of Collection Action; Russett Bruce M. and Sullivan John D., “Collective Goods and International Organization,” with a comment by Olson Mancur Jr, International Organization 25, 4 (Autumn 1971).; Ruggie John Gerard, “Collective Goods and Future International Collaboration,” American Political Science Review 66, 3 (09 1972); Snidal Duncan, “Public Goods, Property Rights, and Political Organization,” International Studies Quarterly 23, 4 (12 1979), p. 544.
21 Keohane, “The Theory of Hegemonic Stability”; Kindleberger Charles P., The World in Depression, 1929–1939 (Berkeley: University of California Press, 1974); Olson Mancur and Zeckhauser Richard, “An Economic Theory of Alliances,” Review of Economics and Statistics 48, 3 (08 1966)., reprinted in Bruce M. Russett, ed., Economic Theories of International Politics (Chicago: Markham, 1968). For a critical appraisal of work placing emphasis on public goods as a rationale for forming international organizations, see Conybeare John A. C., “International Organizations and the Theory of Property Rights,” International Organization 34, 3 (Summer 1980), especially pp. 329–32.
22 My use of the word “functions” here is meant to designate consequences of a certain pattern of activity, particularly in terms of the utility of the activity; it is not to be interpreted as an explanation of the behavior in question, since there is no teleological premise, or assumption that necessity is involved. Understanding the function of international regimes helps, however, to explain why actors have an incentive to create them, and may therefore help to make behavior intelligible within a rational-choice mode of analysis that emphasizes the role of incentives and constraints. For useful distinctions on functionalism, see Nagel Ernest, The Structure of Scientific Explanation (New York: Harcourt, Brace, 1961), especially “Functionalism and Social Science,” pp. 520–35. I am grateful to Robert Packenham for this reference and discussions of this point.
23 Vinod Aggarwal has developed the concept of “nesting” in his work on international regimes in textiles since World War II. I am indebted to him for this idea, which has been elaborated in his “Hanging by a Thread: International Regime Change in the Textile/Apparel System, 1950–1979,” Ph.D. diss., Stanford University, 1981.
24 Of particular value for understanding market failure is Arrow Kenneth J., Essays in the Theory of Risk-Bearing (New York: North Holland/American Elsevier, 1974).
25 Helen Milner suggested to me that international regimes were in this respect like credit markets, and that the history of the development of credit markets could be informative for students of international regimes. The analogy seems to hold. Richard Ehrenberg reports that the development of credit arrangements in medieval European Bourses reduced transaction costs (since money did not need to be transported in the form of specie) and provided highquality information in the form of merchants' newsletters and exchanges of information at fairs: “during the Middle Ages the best information as to the course of events in the world was regularly to be obtained in the fairs and the Bourses” (p. 317). The Bourses also provided credit ratings, which provided information but also served as a crude substitute for effective systems of legal liability. Although the descriptions of credit market development in works such as that by Ehrenberg are fascinating, I have not been able to find a historically-grounded theory of these events. See Ehrenberg Richard, Capital and Finance in the Age of the Renaissance: A Study of the Fuggers and Their Connections, translated from the German by Lucas H. M. (New York: Harcourt, Brace, no date), especially chap. 3 (pp. 307–333).
26 Coase Ronald, “The Problem of Social Cost,” Journal of Law and Economics 3 (10 1960). For a discussion, see Buchanan James and Tullock Gordon, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962), p. 186.
27 If we were to drop the assumption that actors are strictly self-interested utility-maximizers, regimes could be important in another way: they would help to develop norms that are internalized by actors as part of their own utility functions. This is important in real-world politicaleconomic systems, as works by Schumpeter, Polanyi, and Hirsch on the moral underpinnings of a market system indicate. It is likely to be important in many international systems as well. But it is outside the scope of the analytical approach taken in this article-which is designed to illuminate some issues, but not to provide a comprehensive account of international regime change. See Schumpeter Joseph, Capitalism, Socialism, and Democracy (New York: Harper & Row, 1942), especially Part II, ”Can Capitalism Survive?”; Polanyi Karl, The Great Transformation: The Political and Economic Origins of Our Time (1944; Boston: Beacon Press, 1957); and Hirsch Fred, Social Limits to Growth (Cambridge: Harvard University Press, 1976).
28 Information costs could be considered under the category of transaction costs, but they are so important that I categorize them separately in order to give them special attention.
29 For a discussion of “the varieties of international law,” see Henkin Louis, How Nations Behave: Law and Foreign Policy, 2d ed. (New York: Columbia University Press for the Council on Foreign Relations, 1979), pp. 13–22.
30 Davis and North , Institutional Change and American Economic Growth, especially pp. 51–57.
31 The concept of issue density bears some relationship to Simon's Herbert notion of “decomposability, in The Sciences of the Artificial (Cambridge: MIT Press, 1969). In both cases, problems that can be conceived of as separate are closely linked to one another functionally, so that it is difficult to affect one without also affecting others. Issue density is difficult to operationalize, since the universe (the “issue-area” or “policy space”) whose area forms the denominator of the term cannot easily be specified precisely. But given a certain definition of the issue-area, it is possible to trace the increasing density of issues within it over time. See, for example, Keohane Robert O. and Nye Joseph S., Power and Interdependence: World Politics in Transition (Boston: Little, Brown, 1977), chap. 4.
32 On questions of linkage, see Stein Arthur A., “The Politics of Linkage,” World Politics 33, 1 (1980): 62–81; Oye Kenneth, “The Domain of Choice,” in Oye et al. , Eagle Entangled: U.S. Foreign Policy in a Complex World (New York: Longmans, 1979), pp. 3–33; and Tollison Robert D. and Willett Thomas D., “An Economic Theory of Mutually Advantageous Issue Linkage in International Negotiations,” International Organization 33, 4 (Autumn 1979).
33 GATT negotiations and deliberations on the international monetary system have been characterized by extensive bargaining over side-payments and complex politics of issuelinkage. For a discussion see Hutton Nicholas, “The Salience of Linkage in International Economic Negotiations,” Journal of Common Market Studies 13, 1–2 (1975): 136–60.
34 Haas Ernst B., The Uniting of Europe (Stanford: Stanford University Press, 1958).
35 Samuelson Paul A., “The Monopolistic Competition Revolution,” in Kuenne R. E., ed., Monopolistic Competition Theory (New York: Wiley, 1967), p. 117.
36 Increases in issue density could make it more difficult to supply regimes; the costs of providing regimes could grow, for instance, as a result of multiple linkages across issues. The 1970s Law of the Sea negotiations illustrate this problem. As a result, it will not necessarily be the case that increases in interdependence will lead to increases in the number, extensiveness, and strength of international regimes.
37 Stephen D. Krasner, article in this volume, p. 186.
38 Robert Jervis, article in this volume, p. 364.
39 The classic discussion is in Schelling Thomas C., The Strategy of Conflict (1960; Cambridge: Harvard University Press, 1980), chap. 4, “Toward a Theory of Interdependent Decision.” See also Schelling , Micromotives and Macrobehavior (New York: Norton, 1978).
40 For an interesting discussion of regimes in these terms, see the paper in this volume by Oran R. Young. On conventions, see Lewis David K., Convention: A Philosophical Study (Cambridge: Cambridge University Press, 1969).
41 Arthur A. Stein, article in this volume, p. 312.
42 Herbert Simon, “From Substantive to Procedural Rationality,” in Latsis, ed., Method and Appraisal in Economics; Spiro J. Latsis, “A Research Programme in Economics,” in ibid.; and on blackmailing, Oye, “The Domain of Choice.”
43 Williamson Oliver E., Markets and Hierarchies: Analysis and Anti-Trust Implications (New York: Free Press, 1975).
44 Ackerlof George A., “The Market for 'Lemons': Qualitative Uncertainty and the Market Mechanism,” Quarterly Journal of Economics 84, 3 (08 1970).
45 Arrow, Essays in the Theory of Risk-Bearing.
46 Ackerlof, “The Market for 'Lemons'”; Arrow, Essays in the Theory of Risk-Bearing.
47 For an analysis along these lines, see Bobrow Davis B. and Kudrle Robert T., “Energy R&D: In Tepid Pursuit of Collective Goods,” International Organization 33, 2 (Spring 1979): 149–76.
48 Williamson Oliver E., “A Dynamic Theory of Interfirm Behavior,” Quarterly Journal of Economics 79 (1965), p. 584.
49 Strange Susan, “The Management of Surplus Capacity: or How Does Theory Stand Up to Protectionism 1970s Style?”, International Organization 33, 3 (Summer 1979): 303–334.
50 Hirsch Fred, “The Bagehot Problem,” The Manchester School 45, 3 (1977): 241–57.
51 Notice that here, through a functional logic, a systemic analysis has implications for the performance of different governmental structures at the level of the actor. The value of highquality information in making agreements does not force governments to become more open, but it gives advantages to those that do.
52 Williamson , “A Dynamic Theory of Interfirm Behavior,” p. 592, original italics.
53 Power and Interdependence, especially pp. 54–58 and 146–53. Cahn Linda also found lags, particularly in the wheat regime; see “National Power and International Regimes.”
54 Power and Interdependence, p. 55.
55 On the GATT, see Patterson Gardner, Discrimination in International Trade: The Policy Issues (Princeton: Princeton University Press, 1966); on the international monetary regime, see Russell Robert W., “Transgovernmental Interaction in the International Monetary System, 1960–1972,” International Organization 21, 4 (Autumn 1973) and Hirsch Fred, Money International, rev. ed. (Harmondsworth, England: Pelican Books, 1969), especially chap. 11, “Central Bankers International.”
56 Keohane Robert O. and Nye Joseph S., “Transgovernmental Relations and International Organizations,” World Politics 21, 1 (10 1974): 39–62.
57 These first three inferences focus only on the demand side. To understand the degree to which norms, for example, will develop, one needs also to look at supply considerations. Problems of organization, such as those discussed in the public goods literature and the theory of hegemonic stability, may prevent even strongly desired regimes from materializing.
58 Kindleberger has asserted that “for the world economy to be stabilized, there has to be a stabilizer, one stabilizer.” The World in Depression, p. 305.
59 Kindleberger Charles P., “Systems of International Economic Organization,” in Calleo David P., ed., Money and the Coming World Order (New York: New York University Press for the Lehman Institute, 1978); McKinnon Ronald, Money in International Exchange: The Convertible Currency System (New York: Oxford University Press, 1979).
60 Arrow , Essays in the Theory of Risk-Bearing, pp. 134–43.
61 In personal correspondence, Robert Jervis has suggested an interesting qualification to this argument. He writes: “If we look at relations that involve at least the potential for high conflict, then schemes that tie the fates of all the actors together may have utility even if the actors are concerned about catastrophic events which will affect them all. They can worry that if some states are not affected, the latter will be much stronger than the ones who have been injured. So it would make sense for them to work out a scheme which would insure that a disaster would not affect their relative positions, even though this would not mean that they would all not be worse off in absolute terms.” The point is certainly well taken, although one may wonder whether such an agreement would in fact be implemented by the states that would make large relative gains in the absence of insurance payments.
62 Gruhn Isebill V., “The Lome Convention: Inching toward Interdependence,” International Organization 30, 2 (Spring 1976), pp. 255–56.
63 Keohane Robert O., “The International Energy Agency: State Influence and Transgovemmental Politics,” International Organization 32, 4 (Autumn 1978): 929–52.
64 OECD Observer, no. 74 (03–04 1975), pp. 9–13.
65 The optimal condition under which such a coalition may emerge could be called the “paper tiger condition”: a potential external threat to the coalition exists but is too weak to frighten or persuade coalition members to defect or to desist from effective action. OPEC has been viewed by western policy makers since 1973 as a real rather than paper tiger, although some observers keep insisting that there is less to the organization than meets the eye.
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