Contested contracts: Rationalist theories of institutions in American IPE

Abstract

Across the US academy rationalist approaches dominate the study of international political economy. Rationalism assumes that economic actors act instrumentally in pursuit of their ranked preferences. US-based rationalists have examined how a variety of international actors such as governments, states, firms, factor endowment interest groups, economic sectors, and political parties, respond to the pressures of the world economy (Gilpin 1975, Krasner 1976, Olson 1982, Milner 1988, Rogowski 1989, Gowa 1994, Frieden 1991, Shafer 1994, Garrett 1998, and Hiscox 2001). These studies theorize the political reactions of these economic agents to the distributional consequences of new international economic pressures such as changing price signals or the internationalization of trade and investment. Economic actors demand new political arrangements to capture these benefits and attempt to insulate themselves from their costs. The rapid rise and legalization of these new international governance arrangements has led US IPE scholars to increasingly turn their attention to the study of the formation, dynamics and consequences of institutions. Over recent years, the main way in which rationalism has been operationalized for thestudy of international institutions has been through contractarianism. As with all rationalist approaches, contractualists assume that international actors like states and firms are purposeful and consistent, however, they are often adversely influenced by the uncertainty of their contracting environment. Accordingly, contractualists have focused on the conditions that allow cooperative agreements, as transactions, to be reached, maintained and enforced within the international economy, as well as the evolution of various organizational forms within international relations, more broadly. The literature borrows heavily from economic approaches to the study of institutions, transactions and contracting environments. This chapter examines the origins and evolution of U.S.-based contractualist approa-ches to the study of IPE and global governance more broadly. Overall, I argue that contractualist approaches have become more methodologically appropriate as the international economy and its governing institutions have become more integrated andcomplex. Yet, at the same time, some of the ontological assumptions of the early rationalist literature, especially the focus on states and the notion of international regimes as solutions to market failures, no longer adequately reflect the architecture of many contemporary global economic institutions. In reviewing these trends this essay proceeds thematically and, for the most part,chronologically. The first section examines the origins and emergence of neoliberal institutionalist approaches to IPE and their exploration of how the international contracting environment could help or hinder cooperation among states. Following the work of Robert Keohane, rationalist institutionalism and its focus on transaction costs rapidly became the dominant theory in American IPE. This work was followed by the rational design of institutions project, which sought to examine the instrumental logic behind why purposive states adopt certain institutional forms over others. Together, these approaches continue to explore how rational contracting states use and design the rules of international institutions in order to further their interests. The second part of the essay looks at the literature on relational contracting andinternational organization. Rooted in the work of Oliver Williamson, this work has sought to incorporate the importance of power, hierarchy, and even authority within the contractualist paradigm, focusing on the reasons why contracting parties adopt different organizational forms. Relational contracting has also been employed beyond the realm of IPE to the study of many different areas of international hierarchical relations and systemic change. The third section of this essay examines the now burgeoning literature on the credible commitments problem within IPE. This body of work explains why international actors fail to reach or maintain international agreements and identifies the characteristics that lend states greater credibility in their international transactions. In the fourth and final part of this essay I explore an emerging paradox about the studyof contracting in IPE. Even as contractual approaches have been critiqued as too restrictive and ahistorical, the use of contracting as a governing mechanism has dramatically increased in practice. As a result, contracting theory offers us a set of theoretical tools to gain fresh insights in areas not traditionally studied by IPE scholars. Accordingly, contractualist approaches continue to remain theoretically fruitful, but perhaps in different areas of study than those initially examined by American contractualists.