Charles Lipson

The Rational Design of International Institutions

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.

Why are some international agreements informal

Informal agreements are the most common form of international cooperation and the least studied. Ranging from simple oral deals to detailed executive agreements, they permit states to conclude profitable bargains without the formality of treaties. They differ from treaties in more than just a procedural sense. Treaties are designed, by long-standing convention, to raise the credibility of promises by staking national reputation on their adherence. Informal agreements have a more ambiguous status and are useful for precisely that reason. They are chosen to avoid formal and visible national pledges, to avoid the political obstacles of ratification, to reach agreements quickly and quietly, and to provide flexibility for subsequent modification or even renunciation. They differ from formal agreements not because their substance is less important (the Cuban missile crisis was solved by informal agreement) but because the underlying promises are less visible and more equivocal. The prevalence of such informal devices thus reveals not only the possibilities of international cooperation but also the practical obstacles and the institutional limits to endogenous enforcement.

International Cooperation in Economic and Security Affairs

The study of international political economy is distinguished not only by its substantive focus but also by its continuing attention to cooperative, or at least rule-guided, arrangements. These cooperative arrangements are defined variously: as an open world economy by Robert Gilpin and Stephen Krasner, and as strong international regimes by Robert Keohane and Joseph Nye. But in either case, the problems of cooperation and order are not approached simply as tactical alliances or as limiting cases of international anarchy. Instead, close attention is paid to the possibilities for rule making and institution building, however fragile and circumscribed they may be. By this view, the absence of a Hobbesian “common power to keep them all in awe” does not preclude the establishment of some effective joint controls over the international environment. Elaborating on this perspective, Brian Barry argues that “international affairs are not a pure anarchy in which nobody has any reason for expecting reciprocal relations to hold up. In economic matters, particularly, there is a good deal of room for stable expectations.”

Rational design: Looking back to move forward

In this article we summarize the empirical results of the Rational Design project. In general the results strongly support the Rational Design conjectures, especially those on flexibility and centralization; some findings are inconclusive (in particular, those addressing scope) or point toward a need for theoretical reformulation (in particular, the membership dimension). We also address the broader implications of the volumes findings, concentrating on several topics directly related to institutional design and its systematic study. First, we consider the trade-offs in creating highly formalized models to guide the analysis. Second, our discussion of the variable control is a step toward incorporating “power” more fully and explicitly in our analysis. We also consider how domestic politics can be incorporated more systematically into international institutional analysis. Finally, we initiate a discussion about how and why institutions change, particularly how they respond to changing preferences and external shocks. We conclude with a discussion of the forward-looking character of rational design.

Bankers' Dilemmas: Private Cooperation in Rescheduling Sovereign Debts

Cooperation among creditors has been the foundation of international debt arrangement! and is critical to preserving the value of foreign capital. Such cooperation is inherently difficult because every debt rescheduling involves hundreds of banks worldwide, each witr its own financial interests. Nevertheless, large money-center banks have been able to devisi common negotiating positions and conclude rescheduling agreements. Their cooperation i based partly on their extensive daily interactions, which permit both reciprocity and retal iation. In addition, most large banks are permanent fixtures in international capital markets; their ties to other banks and foreign borrowers could be jeopardized if they obstructed a rescheduling. Smaller banks, which lack these international ties, are more apt to hold out from joint arrangements. To secure their agreement, creditor committees (composed of large banks) rely on their domestic ties to these smaller institutions, which is occasionally reinforced by support from central banks.

The development of expropriation insurance: the role of corporate preferences and state initiatives

As part of the Marshall Plan, the United States Government developed a state-sponsored program of insurance against currency inconvertibility in Western Europe, which grew slowly into a worldwide program insuring US-based multinational corporations against expropriation, war and revolution as well as inconvertibility. Two hypotheses—one based on corporate preferences, the other on state initiatives—can be used to predict the programs development between 1948 and 1974. While there is some independent scope for state policy, corporate preferences appear to be crucial: state policy on this issue has served corporate interests, and state initiatives on expropriation insurance are constrained by private investment decisions. The basic harmony between private investors and the state on expropriation insurance issues is explained by their shared goal of private capital accumulation.