Modes of Governance in International Organizations

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

ABSTRACT PROPOSAL NO: 0351586 INSTITUTION: NBER/Princeton University PI: Maggi, Giovanni TITLE: Modes of Governance in International Organizations International agreements are incomplete contracts. Since agreements cannot specify the actions to be taken in all future contingencies, the design of procedures is of key importance to achieve a high degree of cooperation. This research focuses on two kinds of such procedures: decision-making procedures and dispute-settlement procedures. The second theme of this research is that all procedures in international organizations Must be self-enforcing, because there is no other enforcement mechanism. This research project therefore studies the optimal design of self-enforcing international institutions. The first part of the research focuses on self-enforcing voting procedures. The issue is that a country cannot be forced to comply with the decision of the majority; it will comply only if it has incentives to do so, an issue that has received little attention in the literature. The literature on optimal voting rules typically assumes that the outcome of the vote can be perfectly enforced while the literature on self-enforcing international agreements considers infinite-horizon games where there is no scope for voting. Taking self-enforcement issues into account can radically change conclusions on the optimal design of voting systems. For example, the optimal self-enforcing system is the unanimity rule, whereas in a world of perfect enforcement unanimity is suboptimal. The modeling approach in this research can be applied to examine the evolution of the governance mode over time, the design of weighted voting systems, and the optimal size and breadth of international organizations. The second focuses on international dispute settlement procedures. A dispute settlement procedure (DSP) can "fill the gaps" of an incomplete agreement, and idea that has largely been ignored in the formal literature. The modeling approach can help understand the conditions under which a DSP can enhance efficiency, and how the potential gains from a DSP depend on the fundamental parameters of the problem. Another potential remedy to contract incompleteness, possibly complementary to a DSP, is to agree on noncontingent ("rigid") rules ex-ante. Thus another important question is under what conditions the optimal mode of governance involves ex-ante contracting, ex-post dispute settlement, or both. Finally, the DSP itself must be self-enforcing - for example, governments must have incentives to comply with DSP rulings even when they are not favorable to them. This perspective is quite novel, and gives rise to a host of new questions, that can be summarized as follows: how should a self-enforcing dispute settlement system be designed? In an era of increasing globalization and the rise of many international institutions, this research fills an important gap in providing tolls to analyze the governance of such organizations. The broader impact of this project will derive from a better understanding of the issues involved in the design of international decision-making procedures and dispute-settlement systems. This is a highly topical issue, at a time when organizations such as the European Union, the United Nations and the World Trade Organization are struggling to improve their systems of governance.