17 Pages Posted: 11 Jun 2007 Last revised: 23 Aug 2010
Date Written: June 8, 2007
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 increases negotiating costs. In such a context, the existence and form of compliance institutions is of particular importance. We develop a formal model to consider the relationship among 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 facilitates 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 opportunistic breach 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 may undermine the effectiveness of an escape clause (with a dispute resolution mechanism) in promoting compliance. Persistence increases the cost of treaty negotiation by increasing expected costs of compliance. These increased negotiating costs may result in fewer commitments, further rendering the treaty less viable. To mitigate, compliance institutions can be designed to respond dynamically to evolving conditions. When an escape clause fails to preserve compliance under persistence, dynamic adjustment may be more likely, as renegotiation requires a stronger commitment to the agreement. When dynamic adjustment entails periodic scheduled reconvening of signatories, compliance is undermined and disputes are more frequent.
Keywords: treaty, compliance, international law, institutions, uncertainty, evolving games, game theory
JEL Classification: C7, C73, F00, K33
Suggested Citation: Suggested Citation