Section I Theoretical Background
Chapter 2: Understanding States
E. The Role of Reputation
II. Law and Economics Approaches
While power, domestic contexts, non-state actors, institutions, reputation, and cooperation may all play a role in the development of international law and in the decision to ratify human rights treaties, the existing law and economics literature dealing with the establishment of international law bring many of these influences together and contends that international law is based on the desire of states to maximise their welfare and the need to formalise cooperation within a treaty framework.183 We are able to read this interpretation in light of the preceding IR-based approaches, and to contextualise that understanding around law and economics arguments.
The utilisation of the principle of welfare maximisation in the context of scholarly analysis of domestic law assumes that the normative goal of law should be to ensure that the overall utility enjoyed by all subjects is at its highest.184 Legislation should not be introduced and judicial decisions should not be handed down if they affect this situation such that utility is lowered in some way. In transferring this analysis to the international setting, the contention is that little or no
183 This is broadly outlined in Trachtman, The Economic Structure of International Law (n 2); much of the analysis relating to the application of law and economics to international law comes from this source.
184 For a background on the normative aspects of this approach, Anthony T Kronman, ‘Wealth Maximization as a Normative Principle’ [1980] 9 Journal of Legal Studies 227; see, for overview of the role of welfare maximization in law and economics, Francesco Parisi, ‘Positive, Normative and Functional School in Law and Economics’ [2004] 18(3) European Journal of Law and Economics 259.
difference exists between individuals and states. Essentially, both entities are assumed to make decisions based on whether those decisions aid their overall welfare. Whereas welfare may be a relatively easy concept to grasp in its application to individuals, in that those individuals might be wealthier, happier, or freer, its relevance with respect to states is more abstract. Can states, as entities constituting the sum of the preferences of their citizens,185 be analogised as having positive or negative welfare? That those states are made up of many individuals with separate preferences makes it difficult to measure the state’s overall welfare.
Democratic governments making decisions in line with the preferences of the majority of their citizenry are assumed to be maximising welfare. This we could conceivably phrase as internal welfare, in the sense that the decisions made by the government on the international setting align with the interest of the majority and accordingly benefit the state as a whole in a democratic sense. Accordingly, welfare maximisation, from this perspective, can be seen to explain idealist arguments that contend that states use domestic preferences to guide international engagement: if pursuing domestically-guided policies on the international level aids the state’s internal welfare, idealist approaches can be welfare enhancing.
Alternatively, welfare could be measured as an external issue: when a state makes a decision that decision has repercussions for how the state is received by the international community, meaning that, from this perspective, welfare and reputation are synonyms. As a state’s reputation increases or decreases, so too does its welfare. In this light, states are viewed not as entities bringing together the preferences of their constituents but as entities with preferences themselves.
Indeed, aside from reputation, power could be analogised as another form of welfare: improving one’s international power will be welfare enhancing for each respective state, but might not be Pareto-improving for the international community as power cannot be created but merely redistributed.186 Using power as a maxim for welfare maximisation therefore fails as an explanatory approach
185 This problem is well elaborated in Richard C Eichenberg, ‘Domestic Preferences and Foreign Policy: Cumulation and Confirmation in the Study of Public Opinion’ [1998] 48(1) Mershon International Studies Review 97; Andrew Moravcsik, ‘Taking Preferences Seriously: A Liberal Theory of International Politics’ (n 102).
186 Redistributing power among states can be Pareto improving if the states that lose power value it less than the states that gain power.
in relation to why international law emergences on a general level. If states are rational, they should be able to recognise that power cannot be created and that welfare maximisation based on power might be inefficient if concentration of power is the outcome.
A further argument, stemming from institutionalism, could be made that international law comes about and maximises welfare because it enables states to negotiate around issues that prevent welfare being maximised. During negotiation of treaties and institutions, it’s suggested, there are a number of stages. First, countries negotiate how they will negotiate. Second, countries agree
‘rules of non-coercion, property rights, and contract.’ This makes subsequent negotiation easier. Thirdly, institutions are put in place that will reduce transaction costs further. 187 Such institutions indicate the desire of states to reduce the costs of negotiation and to maximise welfare, with human rights treaties, among others, becoming ‘transactions in authority’,188 according to which a state’s ratification indicates its acceptance that the domain of human rights will no longer be exclusively governed by that state alone.
This transfer of authority, however, is only permissible if it is Pareto optimal.
Trachtman has stated that ‘if the barriers to bargaining are eliminated, and parties reach no bargain, we may assume that there was no Pareto-improving bargain available’.189 Such a conclusion presents an anomaly for negotiations over international law, as its perspective is somewhat black and white: it simply assumes that treaties are not negotiated because the treaties do not improve overall welfare. This fails to take account of external influences and variables, such as the heterogeneity of the parties or each party’s resolve that particular conclusions are reached. By contrast, the failure to form an international treaty or establish an institution might not stem from a failure the achieve a Pareto improving outcome, but may be rather rooted in the greater commitment of certain players to not agreeing than in the commitment of other players to agreeing.
187 Trachtman, The Economic Structure of International Law (n 2) 10
188 Trachtman, The Economic Structure of International Law (n 2), 14.
189 George Norman and Joel P Trachtman, ‘The Customary International Law Supergame’ Working Paper 2004, Tufts University (9 March 2004), accessed 10 August 2013, 18
Put very simply, if global welfare maximisation is a necessary criterion for explaining treaty formation, such that the treaty will ‘maximize […] net gains’,190 an absence of an international treaty governing a particular area of human rights implies, firstly, that states do not want to create international law in that particular area, and secondly, that to regulate on the international level does not result in net gains for the international community.
If international law only materialises when it is in the interest of states (irrespective of what drives those interests) then the emergence of international law over the past number of centuries, as a distinct body of law, would need to be explainable on that basis. Whereas state interaction was previously based on customary international law, there was a gradual trend toward codification.191 Goldsmith and Posner frame this development in game theoretic terms, suggesting that ‘many instances of observed CIL may be understood in terms of bilateral cooperation along the lines of a bilateral prisoner’s dilemma game’.192 According to this viewpoint, codification of what were previously informal rules can be understood from the perspective that parties to treaties want to ensure that defection is avoided, and presumably that they want to maximise welfare.
But in order to mitigate defection, states must be able to engage with one another with limited information, as it is costly to enquire about the actions and preferences of other states. In this way, the formation of a treaty is done somewhat blindly. States are armed only with the information they acquired in the customary setting and are aware that compliance in the treaty setting may differ. In periods following the formation of an initial treaty, however, states become better informed about one another, acquiring information about each other’s preferences and activities, with this leading to a reduction in information asymmetries and facilitating easier resolution of treaty breaches.
This assessment of the emergence of treaties, generally, forms the central assertion of the law and economics literature dealing with this issue. Treaties are assumed to increase state incentives to cooperate, as the cost of learning about state preferences and the likelihood of breach decreases under formalised rules
190 Trachtman, The Economic Structure of International Law (n 2), 15.
191 For an excellent overview of this matter, see HWA Thirlway (ed), International Customary Law and Codification: An Examination of the Continuing Role of Custom in the Present Period of Codification of International Law (1st edn, Martinus Nijhoff 1972)
192 Norman and Trachtman, ‘The Customary International Law Supergame’ (n 189), 5.
and institutions. One could therefore argue that maximising welfare becomes easier as more treaties emerge, as falling information asymmetries will expedite treaty formation under Pareto improving conditions. This suggests that the number of human rights treaties in place would grow over time, as the cost of negotiating falls. This has been somewhat borne out in practice, as states have not shown a tendency to form all treaties in early periods.193 On top of this, falling information asymmetries allow states to act more strategically, such as by lodging reservations, objections, and by making submissions to periodic review reports. Taken together, these assorted arguments indicate the importance of information and its availability in both the treaty formation and treaty monitoring process.
But if we consider codification as a means of moving state-to-state interaction away from the prisoner’s dilemma setting, the implication is that shirking is the preferred option by both states. That shirking results in externalities for the other party makes it theoretically more appealing, despite its inefficiency.194 While defection may result in short term gains, the long-term consequences of not cooperating are assumed to outweigh those initial gains. Formalising rules and putting in place institutional structures to monitor compliance increase the cost of shirking and makes it more appealing for both parties to cooperate, with cooperation assumed to indicate a preference for long-term gains over short-term gains. The formal nature of treaties in comparison with the greater uncertainty of customary international law reflects the expectancy that adherence to the former will be stable for a longer period. That stability of adherence assumes, though, that parties can communicate, that information as to compliance is available, and that a somewhat close relationship exists.195 These conditions must have been firstly met for customary international law to emerge, and secondly, for those customs to be formalised into international law as we know it today.
193 As of 1970, three treaties had been drafted; by 1980, another treaty had been added to that list;
by 1990, another three treaties were available to states to ratify; in the decade up to 2000, a new treaty was drafted, while another two were drafted between 2000 and 2010.
194 For a good overview of the various strategies open to players in this scenario, see Robert Axelrod, ‘The Evolution of Strategies in the Iterated Prisoner’s Dilemma’ in Cristina Bicchieri, Richard C Jeffrey, and Brian Skyrms (eds), The Dynamics of Norms (1st edn, Cambridge University Press 1997)
195 Trachtman, The Economic Structure of International Law (n 2), 89-95
Formalising rules therefore follows a continuum from a Hobbesian world to a world of clearly defined rules governing state behaviour and state-to-state interaction. Having said that, if no institutions are put in place does this mean that negotiation efforts have been a failure? In other words, are formalised structures always the preferred institutional design? To a certain extent, the heterogeneity of the parties to treaty negotiations can also be a factor in the success or failure of those negotiations. As Trachtman points out, the payoffs from complying in a prisoner’s dilemma situation vary and the tendency to defect will depend on the asymmetries between the parties.196 In addition, the number of parties to treaty negotiations is also an important variable: as more parties take part in negotiations, the gains from defecting are expected to increase. The continual emergence of new states in the twentieth century would have been expected to heighten those gains, as more could be attained when one defects from a larger group than when one defects from a smaller group. Is it, however, realistic to contend that defecting from human rights treaty negotiations or treaties themselves can be beneficial if those treaties deal with internal matters? A defecting state could continue to pursue its own interests and would not have to take account of the wishes of the international community or of the pronouncements of particular treaty bodies. Remaining outside of the treaty system or breaching one’s obligations brings greater welfare to these states than being inside the system. The gains from defection can be therefore analogised as the ability to pursue domestic human rights policies not influenced by international law and the ability to externalise costs onto other states. Treaty formation as a contractual analogy fits within this understanding, and is relied upon at various points later in this analysis.
This reading of the emergence of international human rights treaties attempts to link the existing game theoretic approaches to international law with the desire of all states to maximise their welfare. When overall global welfare will be maximised as a result of a treaty’s formation, states will form that treaty and establish the relevant institution to monitor state compliance. All of this assumes that formalisation will be Pareto improving and an efficient outcome.
196 Trachtman, The Economic Structure of International Law (n 2), 88.