A Dynamic Institutional Theory of International Law
131 Pages Posted: 1 Jan 2004
This article develops a dynamic institutional theory of international law that integrates and builds from insights in the legal, economics (game theory), and international relations disciplines. While a number of scholars have applied game theory and international relations theories to international law, this theory is both novel and useful because it provides a theoretic framework for (1) analyzing international commitments, compliance institutions, and the dynamic process by which international legal regimes evolve; and for (2) examining and comparing the strategic institutional approaches taken to address compliance issues in different regimes. Each of these contributions is significant.
With respect to the first contribution, international scholars have not developed a rational choice theory that integrates consideration of commitments, institutions and dynamicism. The theory that comes closest is iterated game theory. This theory extends the iterated game theory model, which is often used by rational choice theorists in the international relations and international law disciplines to study international cooperation, by recognizing first that iterated games actually evolve and second that States create institutions to cope with this evolution and sustain cooperation in the face of dynamic change. States understand when entering into an international agreement not only that they face noncompliance risks as traditionally conceived (defection based on incentives presented in iterated game context, for example), but also that dynamic change may threaten the stability of the game (unforeseen events may cause payoffs to change in magnitude or become more or less certain, for example). Accordingly, ex ante, States design institutions to monitor State behavior and adjust payoffs either by rewarding cooperators or punishing defectors - as predicted by traditional game theory - but also to maintain cooperation in the face of dynamic change - as predicted by a theory of evolving games. States create institutions to reduce uncertainty and transaction costs associated with dynamic change and to adjust commitments in future iterations. Such institutions facilitate internal change and maintain cooperation by relieving parties of the need to return to the bargaining table every time the game structure changes.
With respect to the second contribution, international scholars have not developed a theory that supports comparative analysis of the strategic institutional approaches taken to address compliance issues. The dynamic institutional theory highlights compliance strategies that have received very little attention by international scholars despite the prominence of such strategies in practice. The article specifically contends that States pursue three types of compliance strategies: Type I strategies focused on adjusting States' incentives to comply by altering payoff structures (the expected costs and benefits of (non)compliance); Type II strategies focused on facilitating cooperation by reducing transaction costs and uncertainty as the legal regime evolves; and Type III strategies focused on maintaining cooperation and improving regime effectiveness by dynamically adjusting commitments over time. Comparative analysis of compliance institutions illustrates that these strategies may be implemented through different types of institutions and that the optimal choice of strategy and institutions may vary considerably across issue-areas. The final part of the article applies the theoretical framework to the GATT/WTO regime as well as the international regime that regulates ozone depleting substances (the "Ozone regime"). Attention is given to these regimes because they have been effective in achieving treaty objectives, are often considered as models for the development of compliance institutions in related areas of international law, and are increasingly the focal point of interdisciplinary legal issues.
Applying the dynamic institutional theory to the GATT/WTO regime reveals that, while international trade law has evolved into a relatively strong version of public international law, the strength of the current WTO regime does not derive from strict enforcement-oriented institutions aimed at deterring intentional noncompliance through the threat of sanctions, a Type I strategy. Despite its adjudicative, rule-based orientation, the WTO dispute settlement institution, which is the cornerstone of the WTO regime, actually appears to be management-oriented and facilitative in the sense that it primarily implements Type II and Type III compliance strategies and implements Type I strategies only on a limited prospective basis. This important finding is contrary to conventional wisdom and should inform debates regarding reform of the WTO as well as the design of future compliance systems. Overall, the WTO compliance system is designed to maintain regime stability by internalizing (within the structure of formal, legalistic institutions) issues that otherwise might prompt parties to work outside the system (in the realm of pure politics).
Applying the dynamic institutional theory to the Ozone regime reveals the complex, multifaceted nature of the Ozone compliance system, which implements all three strategies through a host of innovative institutions. As a result of this system, the Ozone regime has experienced very high rates of participation and compliance while dynamically adjusting commitment levels and adding newly identified ozone depleting substances to the list of regulated substances. Notably, although the system includes institutions empowered to implement Type I strategies through both positive and negative means (side-payments and penalties), no significant penalties have been given. To date, the compliance system has operated primarily in "managerial mode" with the threat of enforcement lurking in the background.
Keywords: international law, international cooperation, compliance, rational choice theory, institutionalism, institutions, international relations, dispute settlement, WTO, DSU, regimes
JEL Classification: C70, C72, C73, F10, F18, K33, K32
Suggested Citation: Suggested Citation