The Design of International Agreements

Abstract

States entering into international agreements have at their disposal several tools to enhance the credibility of their commitments, including the ability to make the agreement a formal treaty rather than soft law, provide for mandatory dispute resolution procedures, and establish monitoring mechanisms. Each of these strategies - referred to as design elements - increases the costs associated with the violation of an agreement and, therefore, the probability of compliance. Yet even a passing familiarity with international agreements makes it clear that states routinely fail to include these design elements in their agreements. This Article explains why rational states sometimes prefer to design their agreements in such a way as to make them less credible and, therefore, more easily violated. In contrast to domestic law, where contractual violations are sanctioned through zero-sum payments from the breaching party to the breached-against party, sanctions for violations of international agreements are not zero-sum. To the extent sanctions exist, they almost always represent a net loss to the parties. For example, a reputational loss felt by the violating party yields little or no offsetting benefit to its counter-party. When entering into an agreement, then, the parties take into account the possibility of a violation and recognize that if it takes place, the net loss to the parties will be larger if credibility enhancing design measures are in place. In other words, the design elements offer a benefit in the form of greater compliance, but do so by increasing the cost of a violation and the net cost to the parties. When deciding which design elements, if any, to include, the parties must balance the benefits of increased compliance against the costs triggered in the event of a violation.