Compliance Institutions in Treaties

Abstract:     
Due to the costs of negotiating treaties, signatories may defer the resolution of uncertainty to the future rather than include all possible states of nature in a treaty. This particularly will be the case when addressing uncertainty mandates a more comprehensive treaty, and the cost of negotiating this comprehensiveness increases at an increasing rate. In such a context, the existence and form of compliance institutions is of particular importance.

We develop a formal game theoretic model to consider the relationship between treaty negotiation, compliance institutions, and uncertainty over future states of nature. In our model, states of nature determine the costs of compliance with a treaty. We explain that when resolving uncertainty is deferred to the future and compliance costs are unobservable, an escape clause can sustain viability of a treaty. When escape is considered de jure compliance, and signatories are incompletely informed about one another's costs of compliance, an incentive for spurious escape arises. In such a context, we demonstrate that a dispute resolution mechanism that discloses compliance costs of a signatory invoking escape can deter spurious use of the clause.

We incorporate uncertainty through the specification of a discrete time, continuous state stochastic compliance function. Because many policies for which treaties are negotiated exhibit persistence in their costs of compliance, we contrast compliance costs processes with and without persistence. We disclose that persistence undermines the effectiveness of an escape clause (with a dispute resolution mechanism) in promoting compliance.

The second effect of persistence is that it affects the decision of the treaty negotiators regarding the deferral of uncertainty to the future. With persistence, more states of nature (compliance costs) must be addressed by the treaty either in the form of more detailed commitments, or in the form of compliance institutions designed to respond dynamically to evolving conditions. Thus the costs of negotiating a treaty are likely to be higher when persistence is present then when it is not.

Keywords: treaty, compliance, international law, institutions, uncertainty, evolving games, game theory

JEL Classifications: C7, C73, F00, K33

Working Paper Series