How International Institutions Evolve

Table of ContentsI. Introduction 49II. Between Multilateralism and Unilateralism 54III. How Institutions Evolve 58A. The Compatibility of Widening and Deepening: Theory versus Reality.... 58B. Revisiting the Assumptions on Heterogeneity Costs and Gains from Cooperation 591. Heterogeneity costs 602. Gains from public goods 633. Politics and agency costs 65C. Consent Tailoring and Institutional Tailoring 661. Consent tailoring 662. Institutional tailoring 723. The choice between consent tailoring and institutional tailoring 75IV. Limitations and Extensions 77V. Conclusion 80I. IntroductionThe Economic Foundations of International Law by Eric Posner and Alan Sykes represents a significant contribution to an area of law that, for a long time, insulated itself from the insights of law and economics.1 While several other fields of law embraced economic analysis decades ago, the rational choice approach to international law has been slower to emerge. After the publication of this book, however, it is difficult for anyone to deny the analytical value that economics offers in enhancing our ability to understand how international law operates.Among its many important contributions, the book offers an insightful and nuanced overview of the law and economics of international institutions.2 The authors discuss the conditions under which states delegate authority to international institutions and explain why such delegation is rare. Different values and interests across states make it challenging to setde on the goals and rules of an international institution. For the same reason, states are unable to agree on when and how to effectively discipline the institution. These high agency costs lead states to steer away from extensive delegation in most instances, explaining the weakness of many international institutions that currently exist.Despite these challenges, international institutions have proliferated across different areas of international law. These institutions vary enormously in their size and scope. Most institutions are set up to produce and preserve public goods such as free trade, national security, or environmental sustainability. Increasing the number of participants in these institutions allows states to take advantage of economies of scale, hence expanding the availability and sharing the costs of these public goods. However, the pursuit of joint gains takes place within constraints, the most important of which are heterogeneity costs. States hold divergent views as to the precise sectors of the economy that ought to be liberalized, the gravity of various security threats, and the appropriate ways to respond to them, as well as the fair and efficient allocation of responsibilities for environmental protection. An increased membership thus contributes not only to greater gains but also to greater costs as the public goods can no longer be tailored to satisfy the individual preferences of the diverse membership. The optimal size of an institution is determined by this size/heterogeneity trade-off.3 Embracing a transaction-costs approach to international institutions, Posner and Sykes acknowledge this trade-off and treat it as a central explanatory variable to the institutional variation we observe.This Article builds on this key insight. It examines how international institutions respond to the growing preference heterogeneity across their membership that risks undermining the ability of these institutions to deliver public goods. Economic theory suggests that international institutions cannot simultaneously widen and deepen.4 There is an inevitable trade-off between the benefits of size and the costs of heterogeneity. …