The Demand For International Regimes: Robert O. Keohane

The demand for
international regimes
Robert O. Keohane
We study international regimes because we are interested in under-
standing order in world politics. Conflict may be the rule; if so, in-
stitutionalized patterns of cooperation are particularly in need of explana-
tion. The theoretical analysis of international regimes begins with what is at
least an apparent anomaly from the standpoint of Realist theory: the exis-
tence of many "sets of implicit or explicit principles, norms, rules, and
decision-making procedures around which actor expectations converge," in
a variety of areas of international relations.
This article constitutes an attempt to improve our understanding of in-
ternational order, and international cooperation, through an interpretation of
international regime-formation that relies heavily on rational-choice analysis
in the utilitarian social contract tradition. I explore why self-interested ac-
tors in world politics should seek, under certain circumstances, to establish
i nt ernat i onal regi mes t hrough mut ual agreement ; and how we can account
The original idea for this paper germinated in discussions at a National Science Foundation-
sponsored conference on International Politics and International Economics held in Min-
neapolis, Minnesota, in June 1978.
I am indebted to Robert Holt and Anne Krueger for organizing and to the NSF for funding
that meeting. Several knowledgeable friends, particularly Charles Kindleberger, Timothy J.
McKeown, James N. Rosse, and Laura Tyson, provided bibliographical suggestions that helped
me think about the issues discussed here. For written comments on earlier versions of this
article I am especially grateful to Robert Bates, John Chubb, John Conybeare, Colin Day, Alex
Field, Albert Fishlow, Alexander George, Ernst B. Haas, Gerald Helleiner, Harold K. Jacob-
son, Robert Jervis, Stephen D. Krasner, Helen Milner, Timothy J. McKeown, Robert C. North,
John Ruggie, Ken Shepsle, Arthur Stein, Susan Strange, Harrison Wagner, and David Yoffie. I
also benefited from discussions of earlier drafts at meetings held at Los Angeles in October 1980
and at Palm Springs in February 1981, and from colloquia in Berkeley, California, and Cam-
bridge, Massachusetts.
International Organization 36, 2, Spring 1982
0020-8183/82/020325-31 $1.50
1982 by the Massachusetts Institute of Technology
325
326 International Organization
for fluctuations over time in the number, extent, and strength of international
regimes, on the basis of rational calculation under varying circumstances.
Previous work on this subject in the rational-choice tradition has em-
phasized the "theory of hegemonic stability": that is, the view that concen-
tration of power in one dominant state facilitates the development of strong
regimes, and that fragmentation of power is associated with regime col-
lapse.
1
This theory, however, fails to explain lags between changes in power
structures and changes in international regimes; does not account well for
the differential durability of different institutions within a given issue-area;
and avoids addressing the question of why international regimes seem so
much more extensive now in world politics than during earlier periods (such
as the late 19th century) of supposed hegemonic leadership.
2
The argument of this article seeks to correct some of these faults of the
hegemonic stability theory by incorporating it within a supply-demand ap-
proach that borrows extensively from microeconomic theory. The theory of
hegemonic stability can be viewed as focusing only on the supply of interna-
tional regimes: according to the theory, the more concentrated power is in an
international system, the greater the supply of international regimes at any
level of demand.
3
But fluctuations in demand for international regimes are
not taken into account by the theory; thus it is necessarily incomplete. This
article focuses principally on the demand for international regimes in order
to provide the basis for a more comprehensive and balanced interpretation.
Emphasizing the demand for international regimes focuses our attention
on why we should want them in the first place, rather than taking their de-
sirability as a given. I do not assume that "demand" and "supply" can be
specified independently and operationalized as in microeconomics. The
same actors are likely to be the "demanders" and the "suppliers." Fur-
thermore, factors affecting the demand for international regimes are likely
simultaneously to affect their supply as well. Yet supply and demand lan-
guage allows us to make a distinction that is useful in distinguishing
phenomena that, in the first instance, affect the desire for regimes, on the
one hand, or the ease of supplying them, on the other. "Supply and de-
1
See especially Robert O. Keohane, "The Theory of Hegemonic Stability and Changes in
International Economic Regimes, 1967-1977," in Ole R. Holsti, Randolph Siverson, and Alex-
ander George, eds., Changes in the International System (Boulder: Westview, 1980); and Linda
Cahn, "National Power and International Regimes: The United States and International Com-
modity Markets," Ph.D. diss., Stanford University, 1980.
2
Current research on the nineteenth century is beginning to question the assumption that
Britain was hegemonic in a meaningful sense. See Timothy J. McKeown, "Hegemony Theory
and Trade in the Nineteenth Century," paper presented to the International Studies Association
convention, Philadelphia, 18-21 March 1981; and Arthur A. Stein, "The Hegemon's Dilemma:
Great Britain, the United States, and the International Economic Order," paper presented to
the American Political Science Association annual meeting, New York, 3-6 September 1981.
3
The essential reason for this (discussed below) is that actors that are large relative to the
whole set of actors have greater incentives both to provide collective goods themselves and to
organize their provision, than do actors that are small relative to the whole set. The classic
discussion of this phenomenon appears in Mancur Olson Jr., The Logic of Collective Action:
Political Goods and the Theory of Groups (Cambridge: Harvard University Press, 1965).
The demand for international regimes 327
mand" should be seen in this analysis as a metaphor, rather than an attempt
artificially to separate, or to reify, different aspects of an interrelated pro-
cess.
4
Before proceeding to the argument, two caveats are in order. First, the
focus of this article is principally on the strength and extent of international
regimes, rather than on their content or effects. I hope to contribute to
understanding why international regimes wax and wane, leaving to others (in
this volume and elsewhere) the analysis of what ideologies they encompass
or how much they affect ultimate, value-laden outcomes. The only
significant exception to this avoidance of questions of content comes in Sec-
tion 5, which distinguishes between control-oriented and insurance-oriented
regimes. Second, no claim is made here that rational-choice analysis is the
only valid way to understand international regimes, or even that it is prefer-
able to others. On the contrary, I view rational-choice analysis as one way to
generate an insightful interpretation of international regimes that comple-
ments interpretations derived from analyses of conventions and of learning
(illustrated in the articles in this volume by Young and Haas). My analysis is
designed to be neither comprehensive nor exclusive: I suggest hypotheses
and try to make what we know more intelligible, rather than seeking to put
forward a definitive theory of international regimes.
The major arguments of this article are grouped in five sections. First, I
outline the analytical approach by discussing the virtues and limitations of
"systemic constraint-choice analysis." Section 2 lays the basis for the de-
velopment of a constraint-choice theory of international regimes by specifying
the context within which international regimes operate and the functions
they perform. In Section 3 elements of a theory of the demand for interna-
tional regimes are presented, emphasizing the role of regimes in reducing
transactions costs and coping with uncertainty. In Section 4,1 use insights
from theories of information and uncertainty to discuss issues of closure and
communication. Section 5 suggests that control-oriented regimes are likely to
be increasingly supplemented in the 1980s by insurance regimes as the domi-
nance of the advanced industrial countries in the world political economy
declines.
1. Systemic constraint-choice analysis: virtues and limitations
The argument developed here is deliberately limited to the systemic
level of analysis. In a systemic theory, the actors' characteristics are given
by assumption, rather than treated as variables; changes in outcomes are
explained not on the basis of variations in these actor characteristics, but on
the basis of changes in the attributes of the system itself. Microeconomic
theory, for instance, posits the existence of business firms, with given utility
* I am indebted to Albert Fishlow for clarifying this point for me.
functions, and attempts to explain their behavior on the basis of environ-
mental factors such as the competitiveness of markets. It is therefore a sys-
temic theory, unlike the so-called "behavioral theory of the firm," which
examines the actors for internal variations that could account for behavior
not predicted by microeconomic theory.
A systemic focus permits a limitation of the number of variables that
need to be considered. In the initial steps of theory-building, this is a great
advantage: attempting to take into account at the outset factors at the foreign
policy as well as the systemic level would lead quickly to descriptive com-
plexity and theoretical anarchy. Beginning the analysis at the systemic level
establishes a baseline for future work. By seeing how well a simple model
accounts for behavior, we understand better the value of introducing more
variables and greater complexity into the analysis. Without the systemic mi-
croeconomic theory of the firm, for instance, it would not have been clear
what puzzles needed to be solved by an actor-oriented behavioral theory.
A systems-level examination of changes in the strength and extent of
international regimes over time could proceed through historical description.
We could examine a large number of cases, attempting to extract generaliza-
tions about patterns from the data. Our analysis could be explicitly com-
parative, analyzing different regimes within a common analytical frame-
work, employing a methodology such as George's "focused compari-
son."
5
Such a systematic comparative description could be quite useful, but
it would not provide a theoretical framework for posing questions of why,
and under what conditions, regimes should be expected to develop or be-
come stronger. Posing such fundamental issues is greatly facilitated by a
priori reasoning that makes specific predictions to be compared with empiri-
cal findings. Such reasoning helps us to reinterpret previously observed
patterns of behavior as well as suggesting new questions about behavior or
distinctions that have been ignored: it has the potential of "discovering new
facts."
6
This can be useful even in a subject such as international politics,
where the variety of relevant variables is likely to confound any comprehen-
sive effort to build deductive theory. Deductive analysis can thus be used in
interpretation as well as in a traditional strategy of theory-building and
hypothe sis-testing.
This analysis follows the tradition of microeconomic theory by focusing
on constraints and incentives that affect the choices made by actors.
7
We
5
Alexander L. George, "Case Studies and Theory Development: The Method of Structured,
Focused Comparison," in Paul Lauren, ed., Diplomacy: New Approaches in History, Theory,
and Policy (New York: Free Press, 1979).
6
Imre Lakatos, "Falsification and the Methodology of Scientific Research Programmes," in
Lakatos and Alan Musgrave, eds., Criticism and the Growth of Scientific Knowledge (Cam-
bridge: Cambridge University Press, 1970).
7
Stimulating discussions of microeconomic theory can be found in Martin Shubik, "A Cur-
mudgeon's Guide to Microeconomics," Journal of Economic Literature 8 (1970): 405-434; and
Spiro J. Latsis, "A Research Programme in Economics," in Latsis, ed., Method and Appraisal
in Economics (Cambridge: Cambridge University Press, 1976).
assume that, in general, actors in world politics tend to respond rationally to
constraints and incentives. Changes in the characteristics of the interna-
tional system will alter the opportunity costs to actors of various courses of
action, and will therefore lead to changes in behavior. In particular, deci-
sions about creating or joining international regimes will be affected by
system-level changes in this way; in this model the demand for international
regimes is a function of system characteristics.
This article therefore employs a form of rational-choice analysis, which
I prefer to term "constraint-choice" analysis to indicate that I do not make
some of the extreme assumptions often found in the relevant literature. I
assume a prior context of power, expectations, values, and conventions; I
do not argue that rational-choice analysis can derive international regimes
from a "state of nature" through logic alone.
8
This paper also eschews de-
terministic claims, or the hubris of believing that a complete explanation
can be developed through resort to deductive models. To believe this would
commit one to a narrowly rationalistic form of analysis in which expecta-
tions of gain provide both necessary and sufficient explanations of behavior.
9
Such beliefs in the power of Benthamite calculation have been undermined
by the insufficiency of microeconomic theories of the firmdespite their
great value as initial approximationsas shown by the work of organization
theorists such as Simon, Cyert, and March.
10
Rational-choice theory is not advanced here as a magic key to unlock
the secrets of international regime change, much less as a comprehensive
way of interpreting reality. Nor do I employ it as a means of explaining
particular actions of specific actors. Rather, I use rational-choice theory to
develop models that help to explain trends or tendencies toward which pat-
terns of behavior tend to converge. That is, I seek to account for typical, or
modal, behavior. This analysis will not accurately predict the decisions of all
actors, or what will happen to all regimes; but it should help to account for
overall trends in the formation, growth, decay, and dissolution of regimes.
The deductive logic of this approach makes it possible to generate hypoth-
eses about international regime change on an a priori basis. In this article
several such hypotheses will be suggested, although their testing will have to
await further specification. We shall therefore be drawing on microeco-
nomic theories and rational-choice approaches heuristically, to help us con-
8
1 am indebted to Alexander J. Field for making the importance of this point clear to me. See
his paper, "The Problem with Neoclassical Institutional Economics: A Critique with Special
Reference to the North/Thomas Model of Pre-1500 Europe," Explorations in Economic His-
tory 18 (April 1981).
9
Lance E. Davis and Douglass C. North adopt this strong form of rationalistic explanation
when they argue that "an institutional arrangement will be innovated if the expected net gains
exceed the expected costs." See their volume, Institutional Change and American Economic
Growth (Cambridge: Cambridge University Press, 1971).
10
Two of the classic works are James March and Herbert Simon, Organizations (New York:
Wiley, 1958); and Richard Cyert and James March, The Behavioral Theory of the Firm (En-
glewood Cliffs, N.J.: Prentice-Hall, 1963).
struct nontrivial hypotheses about international regime change that can
guide future research.
The use of rational-choice theory implies that we must view decisions
involving international regimes as in some meaningful sense voluntary. Yet
we know that world politics is a realm in which power is exercised regularly
and in which inequalities are great. How, then, can we analyze international
regimes with a voluntaristic mode of analysis?
My answer is to distinguish two aspects of the process by which inter-
national regimes come into being: the imposition of constraints, and decision
making. Constraints are dictated not only by environmental factors but also
by powerful actors. Thus when we speak of an "imposed regime," we are
speaking (in my terminology) of a regime agreed upon within constraints that
are mandated by powerful actors.
11
Any agreement that results from bar-
gaining will be affected by the opportunity costs of alternatives faced by the
various actors: that is, by which party has the greater need for agreement
with the other.
12
Relationships of power and dependence in world politics
will therefore be important determinants of the characteristics of interna-
tional regimes. Actor choices will be constrained in such a way that the
preferences of more powerful actors will be accorded greater weight. Thus in
applying rational-choice theory to the formation and maintenance of inter-
national regimes, we have to be continually sensitive to the structural con-
text within which agreements are made. Voluntary choice does not imply
equality of situation or outcome.
We do not necessarily sacrifice realism when we analyze international
regimes as the products of voluntary agreements among independent actors
within the context of prior constraints. Constraint-choice analysis effec-
tively captures the nonhierarchical nature of world politics without ignoring
the role played by power and inequality. Within this analytical framework, a
systemic analysis that emphasizes constraints on choice and effects of sys-
tem characteristics on collective outcomes provides an appropriate way to
address the question of regime formation.
Constraint-choice analysis emphasizes that international regimes should
not be seen as quasi-governmentsimperfect attempts to institutionalize
centralized authority relationships in world politics. Regimes are more like
contracts, when these involve actors with long-term objectives who seek to
structure their relationships in stable and mutually beneficial ways.
13
In
11
For a discussion of "spontaneous," "negotiated," and "imposed" regimes, see Oran
Young's contribution to this volume.
12
For a lucid and original discussion based on this obvious but important point, see John
Harsanyi, "Measurement of Social Power, Opportunity Costs and the Theory of Two-Person
Bargaining Games," Behavioral Science 7, 1 (1962): 67-80. See also Albert O. Hirschman,
National Power and the Structure of Foreign Trade (1945; Berkeley: University of California
Press, 1980), especially pp. 45-48.
13
S. Todd Lowry, "Bargain and Contract Theory in Law and Economics," in Warren J.
Samuels, ed., The Economy as a System of Power (New Brunswick, N.J.: Transaction Books,
1979), p. 276.
some respects, regimes resemble the "quasi-agreements" that Fellner dis-
cusses when analyzing the behavior of oligopolistic firms.
14
In both contracts
and quasi-agreements, there may be specific rules having to do with prices,
quantities, delivery dates, and the like; for contracts, some of these rules
may be legally enforceable. The most important functions of these arrange-
ments, however, are not to preclude further negotiations, but to establish
stable mutual expectations about others' patterns of behavior and to develop
working relationships that will allow the parties to adapt their practices to
new situations. Rules of international regimes are frequently changed, bent,
or broken to meet the exigencies of the moment. They are rarely enforced
automatically, and they are not self-executing. Indeed, they are often mat-
ters for negotiation and renegotiation; as Puchala has argued, "attempts to
enforce EEC regulations open political cleavages up and down the
supranational-to-local continuum and spark intense politicking along the
cleavage lines."
15
This lack of binding authority associated with international regimes has
important implications for our selection of analytical approaches within a
constraint-choice framework: it leads us to rely more heavily on microeco-
nomic, market-oriented theory than on theories of public choice. Most
public-choice theory is not applicable to international regime change be-
cause it focuses on the processes by which authoritative, binding decisions
are made within states.
16
Yet in international politics, binding decisions,
arrived at through highly institutionalized, rule-oriented processes, are rel-
atively rare and unimportant, and such decisions do not constitute the es-
sence of international regimes. Traditional microeconomic supply and de-
mand analysis, by contrast, assumes a situation in which choices are made
continuously over a period of time by actors for whom "exit"refusal to
purchase goods or services that are offeredis an ever-present option. This
conforms more closely to the situation faced by states contemplating
whether to create, join, remain members of, or leave international regimes.
Since no binding decisions can be made, it is possible to imagine a market for
international regimes as one thinks of an economic market: on the basis of an
analysis of relative prices and cost-benefit calculations, actors decide which
regimes to "buy." In general, we expect states to join those regimes in
which they expect the benefits of membership to outweigh the costs. In such
an analysis, observed changes in the extent and strength of international
14
William Fellner, Competition among the Few (New York: Knopf, 1949).
15
Donald J. Puchala, "Domestic Politics and Regional Harmonization in the European
Communities," World Politics 27,4 (July 1975), p. 509.
18
There are exceptions to this generalization, such as Tiebout's "voting with the feet" mod-
els of population movements among communities. Yet only one chapter of fourteen in a recent
survey of the public-choice literature is devoted to such models, which do not focus on au-
thoritative decision-making processes. See Dennis C. Mueller, Public Choice (Cambridge:
Cambridge University Press, 1980). For a brilliantly innovative work on "exit" versus "voice"
processes, see Albert O. Hirschman, Exit, Voice, and Loyalty (Cambridge: Harvard University
Press, 1970).
regimes may be explained by reference to changes either in the characteris-
tics of the international system (the context within which actors make
choices) or of the international regimes themselves (about which the choices
are made).
This constraint-choice approach draws attention to the question of why
disadvantaged actors join international regimes even when they receive
fewer benefits than other membersan issue ignored by arguments that re-
gard certain regimes as simply imposed. Weak actors as well as more pow-
erful actors make choices, even if they make them within more severe con-
straints. (Whether such choices, made under severe constraint, imply obli-
gations for the future is another question, one not addressed here.)
17
2. The context and functions of international regimes
Analysis of international regime-formation within a constraint-choice
framework requires that one specify the nature of the context within which
actors make choices and the functions of the institutions whose patterns of
growth and decay are being explained. Two features of the international
context are particularly important: world politics lacks authoritative gov-
ernmental institutions, and is characterized by pervasive uncertainty. Within
this setting, a major function of international regimes is to facilitate the
making of mutually beneficial agreements among governments, so that the
structural condition of anarchy does not lead to a complete "war of all
against all."
The actors in our model operate within what Waltz has called a "self-
help system," in which they cannot call on higher authority to resolve
difficulties or provide protection.
18
Negative externalities are common:
states are forever impinging on one another's interests.
19
In the absence of
authoritative global institutions, these conflicts of interest produce uncer-
tainty and risk: possible future evils are often even more terrifying than
present ones. All too obvious with respect to matters of war and peace,
this is also characteristic of the international economic environment.
Actors in world politics may seek to reduce conflicts of interest and risk
17
Anyone who has thought about Hobbes's tendentious discussion of "voluntary"
agreements in Leviathan realizes the dangers of casuistry entailed in applying voluntaristic
analysis to politics, especially when obligations are inferred from choices. This article follows
Hobbes's distinction between the structure of constraints in a situation, on the one hand, and
actor choices, on the other; but it does not adopt his view that even severely constrained
choices ("your freedom or your life") create moral or political obligations.
18
Kenneth N. Waltz, Theory of International Politics (Reading, Mass.: Addison-Wesley,
1979).
19
Externalities exist whenever an acting unit does not bear all of the costs, or fails to reap all
of the benefits, that result from its behavior. See Davis and North, Institutional Change and
American Economic Growth, p. 16.
by coordinating their behavior. Yet coordination has many of the character-
istics of a public good, which leads us to expect that its production will be
too low.
20
That is, increased production of these goods, which would yield
net benefits, is not undertaken. This insight is the basis of the major
"supply-side" argument about international regimes, epitomized by the
theory of hegemonic stability. According to this line of argument, hegemonic
international systems should be characterized by levels of public goods pro-
duction higher than in fragmented systems; and, if international regimes
provide public goods, by stronger and more extensive international re-
gimes.
21
This argument, important though it is, ignores what I have called the
"demand" side of the problem of international regimes: why should gov-
ernments desire to institute international regimes in the first place, and how
much will they be willing to contribute to maintain them? Addressing these
issues will help to correct some of the deficiencies of the theory of
hegemonic stability, which derive from its one-sidedness, and will contribute
to a more comprehensive interpretation of international regime change. The
familiar context of world politicsits competitiveness, uncertainty, and
conflicts of interestnot only sets limits on the supply of international re-
gimes, but provides a basis for understanding why they are demanded.
Before we can understand why regimes are demanded, however, it is
necessary to establish what the functions of international regimes, from the
perspective of states, might be.
22
At the most specific level, students of international cooperation are in-
terested in myriads of particular agreements made by governments: to
20
Olson, The Logic of Collection Action; Bruce M. Russett and John D. Sullivan, "Collective
Goods and International Organization," with a comment by Mancur Olson Jr., International
Organization 25,4 (Autumn 1971); John Gerard Ruggie, "Collective Goods and Future Interna-
tional Collaboration," American Political Science Review 66,3 (September 1972); Duncan
Snidal, "Public Goods, Property Rights, and Political Organization," International Studies
Quarterly 23,4 (December 1979), p. 544.
21
Keohane, "The Theory of Hegemonic Stability"; Charles P. Kindleberger, The World in
Depression, 1929-1939 (Berkeley: University of California Press, 1974); Mancur Olson and
Richard Zeckhauser, "An Economic Theory of Alliances," Review of Economics and Statistics
48,3 (August 1966), reprinted in Bruce M. Russett, ed., Economic Theories of International
Politics (Chicago: Markham, 1968). For a critical appraisal of work placing emphasis on public
goods as a rationale for forming international organizations, see John A. C. Conybeare, "Inter-
national Organizations and the Theory of Property Rights," International Organization 34,3
(Summer 1980), especially pp. 329-32.
22
My use of the word "functions" here is meant to designate consequences of a certain
pattern of activity, particularly in terms of the utility of the activity; it is not to be interpreted as
an explanation of the behavior in question, since there is no teleological premise, or assumption
that necessity is involved. Understanding the function of international regimes helps, however,
to explain why actors have an incentive to create them, and may therefore help to make behav-
ior intelligible within a rational-choice mode of analysis that emphasizes the role of incentives
and constraints. For useful distinctions on functionalism, see Ernest Nagel, The Structure of
Scientific Explanation (New York: Harcourt, Brace, 1961), especially "Functionalism and So-
cial Science," pp. 520-35.1 am grateful to Robert Packenham for this reference and discussions
of this point.
maintain their exchange rates within certain limits, to refrain from trade dis-
crimination, to reduce their imports of petroleum, or progressively to reduce
tariffs. These agreements are made despite the fact that, compared to
domestic political institutions, the institutions of world politics are ex- ,
tremely weak: an authoritative legal framework is lacking and regularized
institutions for conducting transactions (such as markets backed by state
authority or binding procedures for making and enforcing contracts) are
often poorly developed.
Investigation of the sources of specific agreements reveals that they are
not, in general, made on an ad hoc basis, nor do they follow a random pat-
4
tern. Instead, they are "nested" within more comprehensive agreements,
covering more issues. An agreement among the United States, Japan, and
the European Community in the Multilateral Trade Negotiations to reduce a
particular tariff is affected by the rules, norms, principles, and procedures of
the General Agreement on Tariffs and Trade (GATT)that is, by the trade
regime. The trade regime, in turn, is nested within a set of other ^
arrangementsincluding those for monetary relations, energy, foreign in-
vestment, aid to developing countries, and other issuesthat together con-
stitute a complex and interlinked pattern of relations among the advanced
market-economy countries. These, in turn, are related to military-security
relations among the major states.
23
Within this multilayered system, a major function of international re-
gimes is to facilitate the making of specific agreements on matters of sub-
stantive significance within the issue-area covered by the regime. Interna-
tional regimes help to make governments' expectations consistent with one
another. Regimes are developed in part because actors in world politics be-
lieve that with such arrangements they will be able to make mutually benefi-
cial agreements that would otherwise be difficult or impossible to attain. In
other words, regimes are valuable to governments where, in their absence,
certain mutually beneficial agreements would be impossible to consummate. <
In such situations, ad hoc joint action would be inferior to results of negotia-
tion within a regime context.
Yet this characterization of regimes immediately suggests an explan-
atory puzzle. Why should it be worthwhile to construct regimes (them-
selves requiring agreement) in order to make specific agreements within the
regime frameworks? Why is it not more efficient simply to avoid the regime 4
stage and make the agreements on an ad hoc basis? In short, why is there
any demand for international regimes apart from a demand for international
agreements on particular questions?
An answer to this question is suggested by theories of "market failure"
in economics. Market failure refers to situations in which the outcomes of
^
23
Vinod Aggarwal has developed the concept of "nesting" in his work on international re-
gimes in textiles since World War II. I am indebted to him for this idea, which has been elabo-
rated in his "Hanging by a Thread: International Regime Change in the Textile/Apparel System,
1950-1979," Ph.D. diss., Stanford University, 1981.
market-mediated interaction are suboptimal (given the utility functions of
actors and the resources at their disposal). Agreements that would be benefi-
cial to all parties are not made. In situations of market failure, economic
activities uncoordinated by hierarchical authority lead to z/refficient results,
rather than to the efficient outcomes expected under conditions of perfect
competition. In the theory of market failure, the problems are attributed not
to inadequacies of the actors themselves (who are presumed to be rational
utility-maximizers) but rather to the structure of the system and the institu-
tions, or lack thereof, that characterize it.
24
Specific attributes of the system
impose transactions costs (including information costs) that create barriers
to effective cooperation among the actors. Thus institutional defects are
responsible for failures of coordination. To correct these defects, conscious
institutional innovation may be necessary, although a good economist will
always compare the costs of institutional innovation with the costs of market
failure before recommending tampering with the market.
Like imperfect markets, world politics is characterized by institutional
deficiencies that inhibit mutually advantageous coordination. Some of the
deficiencies revolve around problems of transactions costs and uncertainty
that have been cogently analyzed by students of market failure. Theories of
market failure specify types of institutional imperfections that may inhibit
agreement; international regimes may be interpreted as helping to correct
similar institutional defects in world politics. Insofar as regimes are estab-
lished through voluntary agreement among a number of states, we can inter-
pret them, at least in part, as devices to overcome the barriers to more
efficient coordination identified by theories of market failure.
25
The analysis that follows is based on two theoretical assumptions. First,
the actors whose behavior we analyze act, in general, as rational utility-
maximizers in that they display consistent tendencies to adjust to external
changes in ways that are calculated to increase the expected value of out-
comes to them. Second, the international regimes with which we are con-
cerned are devices to facilitate the making of agreements among these actors.
From these assumptions it follows that the demand for international regimes
24
Of particular value for understanding market failure is Kenneth J. Arrow, Essays in the
Theory of Risk-Bearing (New York: North Holland/American Elsevier, 1974).
25
Helen Milner suggested to me that international regimes were in this respect like credit
markets, and that the history of the development of credit markets could be informative for
students of international regimes. The analogy seems to hold. Richard Ehrenberg reports that
the development of credit arrangements in medieval European Bourses reduced transaction
costs (since money did not need to be transported in the form of specie) and provided high-
quality information in the form of merchants' newsletters and exchanges of information at fairs:
"during the Middle Ages the best information as to the course of events in the world was
regularly to be obtained in the fairs and the Bourses" (p. 317). The Bourses also provided credit
ratings, which provided information but also served as a crude substitute for effective systems
of legal liability. Although the descriptions of credit market development in works such as that
by Ehrenberg are fascinating, I have not been able to find a historically-grounded theory of
these events. See Richard Ehrenberg, Capital and Finance in the Age of the Renaissance: A
Study of the Fuggers and Their Connections, translated from the German by H. M. Lucas (New
York: Harcourt, Brace, no date), especially chap. 3 (pp. 307-333).
at any given price will vary directly with the desirability of agreements to
states and with the ability of international regimes actually to facilitate the
making of such agreements. The condition for the theory's operation (that is,
for regimes to be formed) is that sufficient complementary or common inter-
ests exist so that agreements benefiting all essential regime members can be
made.
The value of theories of market failure for this analysis rests on the fact
that they allow us to identify more precisely barriers to agreements. They
therefore suggest insights into how international regimes help to reduce
those barriers, and they provide richer interpretations of previously ob-
served, but unexplained, phenomena associated with international regimes
and international policy coordination. In addition, concepts of market failure
help to explain the strength and extent of international regimes by identifying
characteristics of international systems, or of international regimes them-
selves, that affect the demand for such regimes and therefore, given a supply
schedule, their quantity. Insights from the market-failure literature therefore
take us beyond the trivial cost-benefit or supply-demand propositions with
which we began, to hypotheses about relationships that are less familiar.
The emphasis on efficiency in the market-failure literature is consistent
with our constraint-choice analysis of the decision-making processes leading
to the formation and maintenance of international regimes. Each actor must
be as well or better off with the regime than without itgiven the prior
structure of constraints. This does not imply, of course, that the whole pro-
cess leading to the formation of a new international regime will yield overall
welfare benefits. Outsiders may suffer; indeed, some international regimes
(such as alliances or cartel-type regimes) are specifically designed to impose
costs on them. These costs to outsiders may well outweigh the benefits to
members. In addition, powerful actors may manipulate constraints prior to
the formation of a new regime. In that case, although the regime per se may
achieve overall welfare improvements compared to the immediately pre-
ceding situation, the results of the joint process may be inferior to those that
existed before the constraints were imposed.
3. Elements of a theory of the demand for international regimes
We are now in a position to address our central puzzlewhy is there
any demand for international regimes?and to outline a theory to explain
why this demand exists. First, it is necessary to use our distinction between
"agreements" and "regimes" to pose the issue precisely: given a certain
level of demand for international agreements, what will affect the demand
for international regimes? The Coase theorem, from the market-failure liter-
ature, will then be used to develop a list of conditions under which inter-
national regimes are of potential value for facilitating agreements in world
politics. This typological analysis turns our attention toward two central
problems, transactions cost and informational imperfections. Questions
of information, involving uncertainty and risk, will receive particular
attention, since their exploration has rich implications for interpretation
and future research.
The demand for agreements and the demand for regimes
It is crucial to distinguish clearly between international regimes, on the
one hand, and mere ad hoc substantive agreements, on the other. Regimes,
as argued above, facilitate the making of substantive agreements by provid-
ing a framework of rules, norms, principles, and procedures for negotiation.
A theory of international regimes must explain why these intermediate ar-
rangements are necessary.
In our analysis, the demand for agreements will be regarded as exoge-
nous. It may be influenced by many factors, particularly by the perceptions
that leaders of governments have about their interests in agreement or
nonagreement. These perceptions will, in turn, be influenced by domestic
politics, ideology, and other factors not encompassed by a systemic,
constraint-choice approach. In the United States, "internationalists" have
been attracted to international agreements and international organizations as
useful devices for implementing American foreign policy; "isolationists"
and "nationalists" have not. Clearly, such differences cannot be accounted
for by our theory. We therefore assume a given desire for agreements and
ask: under these conditions, what will be the demand for international re-
gimes?
Under certain circumstances defining the demand and supply of
agreements, there will be no need for regimes and we should expect none to
form. This will be the situation in two extreme cases, where demand for
agreements is nil and where the supply of agreements is infinitely elastic and
free (so that all conceivable agreements can be made costlessly). But where
the demand for agreements is positive at some level of feasible cost, and the
supply of agreements is not infinitely elastic and free, there may be a demand
for international regimes i/they actually make possible agreements yielding
net benefits that would not be possible on an ad hoc basis. In such a situation
regimes can be regarded as "efficient." We can now ask: under what specific
conditions will international regimes be efficient?
One way to address this question is to pose its converse. To ask about
the conditions under which international regimes will be worthless enables
us to draw on work in social choice, particularly by Ronald Coase. Coase
was able to show that the presence of externalities alone does not necessar-
ily prevent Pareto-optimal coordination among independent actors: under
certain conditions, bargaining among these actors could lead to Pareto-
optimal solutions. The key conditions isolated by Coase were (a) a legal
framework establishing liability for actions, presumably supported by gov-
ernmental authority; (b) perfect information; and (c) zero transactions costs
(including organization costs and costs of making side-payments).
28
If all
these conditions were met in world politics, ad hoc agreements would be
costless and regimes unnecessary. At least one of them must not be fulfilled
if international regimes are to be of value, as facilitators of agreement, to
independent utility-maximizing actors in world politics. Inverting the Coase
theorem provides us, therefore, with a list of conditions, at least one of
which must apply if regimes are to be of value in facilitating agreements
among governments:
27
(a) lack of a clear legal framework establishing liability for actions;
(b) information imperfections (information is costly);
(c) positive transactions costs.
28
In world politics, of course, all of these conditions are met all of the
time: world government does not exist; information is extremely costly and
often impossible to obtain; transactions costs, including costs of organiza-
tion and side-payments, are often very high. Yet the Coase theorem is useful
not merely as a way of categorizing these familiar problems, but because it
suggests how international regimes can improve actors' abilities to make
mutually beneficial agreements. Regimes can make agreement easier if they
provide frameworks for establishing legal liability (even if these are not per-
fect); improve the quantity and quality of information available to actors; or
reduce other transactions costs, such as costs of organization or of making
side-payments. This typology allows us to specify regime functionsas de-
vices to make agreements possiblemore precisely, and therefore to under-
stand demand for international regimes. Insofar as international regimes can
correct institutional defects in world politics along any of these three dimen-
sions (liability, information, transactions costs), they may become efficient
devices for the achievement of state purposes.
Regimes do not establish binding and enforceable legal liabilities in any
strict or ultimately reliable sense, although the lack of a hierarchical struc-
26
Ronald Coase, "The Problem of Social Cost," Journal of Law and Economics 3 (October
1960). For a discussion, see James Buchanan and Gordon Tullock, The Calculus of Consent:
Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press,
1962), p. 186.
27
If we wer e t o dr op t he assumpt i on t hat act or s are strictly self-interested ut i l i t y-maxi mi zers,
regi mes coul d be i mport ant in anot her way: t hey woul d hel p t o devel op nor ms t hat are inter-
nalized by act ors as part of their own utility funct i ons. Thi s is i mport ant in real -worl d political-
economi c syst ems, as wor ks by Schumpet er , Pol anyi , and Hi r sch on t he moral underpi nni ngs of
a mar ket syst em i ndi cat e. It is likely t o be i mport ant in many i nt ernat i onal syst ems as wel l . But
it is out si de t he scope of t he anal yt i cal appr oach t aken in this ar t i cl ewhi ch is desi gned t o
illuminate some i ssues, but not to provi de a compr ehensi ve account of i nt ernat i onal regi me
change. See Joseph Schumpet er , Capitalism, Socialism, and Democracy ( New Yor k: Har per &
Row, 1942), especi al l y Part I I , " Ca n Capi t al i sm Sur vi ve?" ; Karl Pol anyi , The Great Transfor-
mation: The Political and Economic Origins of Our Time (1944; Bost on: Beacon Pr ess, 1957);
and Fr ed Hi r sch, Social Limits to Growth (Cambri dge: Har var d Uni versi t y Pr ess, 1976).
28
Information costs could be considered under the category of transaction costs, but they are
so important that I categorize them separately in order to give them special attention.
ture does not prevent the development of bits and pieces of law.
29
Regimes
are much more important in providing established negotiating frameworks
(reducing transactions costs) and in helping to coordinate actor expectations
(improving the quality and quantity of information available to states). An
explanation of these two functions of international regimes, with the help of
microeconomic analysis, will lead to hypotheses about how the demand for
international regimes should be expected to vary with changes in the nature
of the international system (in the case of transactions costs) and about ef-
fects of characteristics of the international regime itself (in the case of infor-
mation).
International regimes and transactions costs
Neither international agreements nor international regimes are created
spontaneously. Political entrepreneurs must exist who see a potential profit
in organizing collaboration. For entrepreneurship to develop, not only must
there be a potential social gain to be derived from the formation of an inter-
national arrangement, but the entrepreneur (usually, in world politics, a gov-
ernment) must expect to be able to gain more itself from the regime than it
invests in organizing the activity. Thus organizational costs to the entre-
preneur must be lower than the net discounted value of the benefits that the
entrepreneur expects to capture for itself.
30
As a result, international coop-
eration that would have a positive social payoff may not be initiated unless a
potential entrepreneur would profit sufficiently. This leads us back into
questions of supply and the theory of hegemonic stability, since such a situ-
ation is most likely to exist where no potential entrepreneur is large relative
to the whole set of potential beneficiaries, and where "free riders" cannot be
prevented from benefiting from cooperation without paying proportionately.
Our attention here, however, is on the demand side: we focus on the
efficiency of constructing international regimes, as opposed simply to mak-
ing ad hoc agreements. We only expect regimes to develop where the costs
of making ad hoc agreements on particular substantive matters are higher
than the sum of the costs of making such agreements within a regime
framework and the costs of establishing that framework.
With respect to transactions costs, where do we expect these conditions
to be met? To answer this question, it is useful to introduce the concept of
issue density to refer to the number and importance of issues arising within a
given policy space. The denser the policy space, the more highly interde-
pendent are the different issues, and therefore the agreements made about
29
For a discussion of "the varieties of international law," see Louis Henkin, How Nations
Behave: Law and Foreign Policy, 2d ed. (New York: Columbia University Press for the Council
on Foreign Relations, 1979), pp. 13-22.
30
Davis and North, Institutional Change and American Economic Growth, especially pp.
51-57.
them. Where issue density is low, ad hoc agreements are quite likely to be
adequate: different agreements will not impinge on one another significantly,
and there will be few economies of scale associated with establishing inter-
national regimes (each of which would encompass only one or a few
agreements). Where issue density is high, on the other hand, one substantive
objective may well impinge on another and regimes will achieve economies
of scale, for instance in establishing negotiating procedures that are applica-
ble to a variety of potential agreements within similar substantive areas of
activity.
31
Furthermore, in dense policy spaces, complex linkages will develop
among substantive issues. Reducing industrial tariffs without damaging
one's own economy may depend on agricultural tariff reductions from
others; obtaining passage through straits for one's own warships may de-
pend on wider decisions taken about territorial waters; the sale of food to
one country may be more or less advantageous depending on other food-
supply contracts being made at the same time. As linkages such as these
develop, the organizational costs involved in reconciling distinct objectives
will rise and demands for overall frameworks of rules, norms, principles, and
procedures to cover certain clusters of issuesthat is, for international
regimeswill increase.
International regimes therefore seem often to facilitate side-payments
among actors within issue-areas covered by comprehensive regimes, since
they bring together negotiators to consider a whole complex of issues. Side-
payments in general are difficult in world politics and raise serious issues of
transaction costs: in the absence of a price system for the exchange of
favors, these institutional imperfections will hinder cooperation.
32
Interna-
tional regimes may provide a partial corrective.
33
The well-known literature
on "spillover" in bargaining, relating to the European Community and other
integration schemes, can also be interpreted as being concerned with side-
31
The concept of issue density bears some relationship to Herbert Simon's notion of "de-
composability," in The Sciences of the Artificial (Cambridge: MIT Press, 1969). In both cases,
problems that can be conceived of as separate are closely linked to one another functionally, so
that it is difficult to affect one without also affecting others. Issue density is difficult to
operationalize, since the universe (the "issue-area" or "policy space") whose area forms the
denominator of the term cannot easily be specified precisely. But given a certain definition of
the issue-area, it is possible to trace the increasing density of issues within it over time. See, for
example, Robert O. Keohane and Joseph S. Nye, Power and Interdependence: World Politics
in Transition (Boston: Little, Brown, 1977), chap. 4.
32
On questions of linkage, see Art hur A. Stein, " The Politics of Li nkage, " World Politics
33,1 (Oct ober 1980): 62- 81; Kennet h Oye, " The Domain of Choi ce, " in Oye et al . , Eagle
Entangled: U.S. Foreign Policy in a Complex World (New York: Longmans, 1979), pp. 3- 33;
and Robert D. Tollison and Thomas D. Willett, " An Economi c Theory of Mutually Advant a-
geous Issue Linkage in International Negot i at i ons, " International Organization 33,4 (Aut umn
1979).
33
GATT negotiations and deliberations on the international monet ary syst em have been
charact eri zed by ext ensi ve bargaining over side-payment s and compl ex politics of issue-
linkage. For a discussion see Nicholas Hut t on, " The Salience of Linkage in International Eco-
nomic Negot i at i ons, " Journal of Common Market Studies 13, 1-2 (1975): 136-60.
payments. In this literature, expectations that an integration arrangement
can be expanded to new issue-areas permit the broadening of potential side-
payments, thus facilitating agreement.
34
It should be noted, however, that regimes may make it more difficult to
link issues that are clustered separately. Governments tend to organize
themselves consistently with how issues are treated internationally, as well
as vice versa; issues considered by different regimes are often dealt with by
different bureaucracies at home. Linkages and side-payments become
difficult under these conditions, since they always involve losses as well as
gains. Organizational subunits that would lose, on issues that matter to
them, from a proposed side-payment are unlikely to support it on the basis of
another agency's claim that it is in the national interest. Insofar as the divid-
ing lines between international regimes place related issues in different juris-
dictions, they may well make side-payments and linkages between these is-
sues less feasible.
The crucial point about regimes to be derived from this discussion of
transactions costs can be stated succinctly: the optimal size of a regime will
increase if there are increasing rather than diminishing returns to regime-
scale (reflecting the high costs of making separate agreements in a dense
policy space), or if the marginal costs of organization decline as regime size
grows. The point about increasing returns suggests an analogy with the
theory of imperfect competition among firms. As Samuelson notes, "in-
creasing returns is the prime case of deviations from perfect competition."
35
In world politics, increasing returns to scale lead to more extensive interna-
tional regimes.
The research hypothesis to be derived from this analysis is that in-
creased issue density will lead to greater demand for international regimes
and to more extensive regimes. Since greater issue density is likely to be a
feature of situations of high interdependence, this forges a link between
interdependence and international regimes: increases in the former can be
expected to lead to increases in demand for the latter.
38
The demand for principles and norms
The definition of international regimes provided in the introduction to
this volume stipulates that regimes must embody principles ("beliefs of fact,
causation, and rectitude") and norms ("standards of behavior defined in
34
Ernst B. Haas, The Uniting of Europe (Stanford: Stanford University Press, 1958).
35
Paul A. Samuelson, "The Monopolistic Competition Revolution," in R. E. Kuenne, ed.,
Monopolistic Competition Theory (New York: Wiley, 1967), p. 117.
36
Increases in issue density could make it more difficult to supply regimes; the costs of pro-
viding regimes could grow, for instance, as a result of multiple linkages across issues. The 1970s
Law of the Sea negotiations illustrate this problem. As a result, it will not necessarily be the
case that increases in interdependence will lead to increases in the number, extensiveness, and
strength of international regimes.
terms of rights and obligations") as well as rules and decision-making proce-
dures.
37
Otherwise, international regimes would be difficult to distinguish
from any regular patterns of action in world politics that create common
expectations about behavior: even hostile patterns of interactions could be
seen as embodying regimes if the observer could infer implied rules and
decision-making procedures from behavior.
Arguments about definitions are often tedious. What is important is not
whether this definition is "correct," but that principles and norms are inte-
gral parts of many, if not all, of the arrangements that we regard as interna-
tional regimes. This raises the question of why, in interactions (such as those
of world politics) characterized by conflict arising from self-interest, norms
and principles should play any role at all.
The constraint-choice framework used in this article is not the best ap-
proach for describing how principles and norms of state behavior evolve
over time. The legal and sociological approaches discussed in this volume by
Young are better adapted to the task of historical interpretation of norm-
development. Nevertheless, a brief analysis of the function of principles and
norms in an uncertain environment will suggest why they are important for
fulfilling the overall function of international regimes: to facilitate mutually
advantageous international agreements.
An important principle that is shared by most, if not all, international
regimes is what Jervis calls "reciprocation": the belief that if one helps
others or fails to hurt them, even at some opportunity cost to oneself, they
will reciprocate when the tables are turned. In the Concert of Europe, this
became a norm specific to the regime, a standard of behavior providing that
statesmen should avoid maximizing their interests in the short term for the
sake of expected long-run gains.
38
This norm requires action that does not reflect specific calculations of
self-interest: the actor making a short-run sacrifice does not know that future
benefits will flow from comparable restraint by others, and can hardly be
regarded as making precise calculations of expected utility. What Jervis calls
the norm of reciprocationor (to avoid confusion with the concept of reci-
procity in international law) what I shall call a norm of generalized
commitmentprecisely forbids specific interest calculations. It rests on the
premise that a veil of ignorance stands between us and the future, but that
we should nevertheless assume that regime-supporting behavior will be
beneficial to us even though we have no convincing evidence to that effect.
At first glance, it may seem puzzling that governments ever subscribe
either to the principle of generalized commitment (that regime-supporting
behavior will yield better results than self-help in the long run) or to the
corresponding norm in a given regime (that they should act in a regime-
supporting fashion). But if we think about international regimes as devices to
37
Stephen D. Krasner, article in this volume, p. 186.
38
Robert Jervis, article in this volume, p. 364.
facilitate mutually beneficial agreements the puzzle can be readily resolved.
Without such a norm, each agreement would have to provide net gains for
every essential actor, or side-payments would have to be arranged so that
the net gains of the package were positive for all. Yet as we have seen,
side-payments are difficult to organize. Thus, packages of agreements will
usually be difficult if not impossible to construct, particularly when time is
short, as in a balance of payments crisis or a sudden military threat. The
principle of generalized commitment, however, removes the necessity for
specific clusters of agreements, each of which is mutually beneficial. Within
the context of a regime, help can be extended by those in a position to do so,
on the assumption that such regime-supporting behavior will be reciprocated
in the future. States may demand that others follow the norm of generalized
commitment even if they are thereby required to supply it themselves, be-
cause the result will facilitate agreements that in the long run can be ex-
pected to be beneficial for all concerned.
The demand for specific information
The problems of organization costs discussed earlier arise even in situa-
tions where actors have entirely consistent interests (pure coordination
games with stable equilibria). In such situations, however, severe informa-
tion problems are not embedded in the structure of relationships, since ac-
tors have incentives to reveal information and their own preferences fully to
one another. In these games the problem is to reach some agreement point;
but it may not matter much which of several is chosen.
39
Conventions are
important and ingenuity may be required, but serious systemic impediments
to the acquisition and exchange of information are lacking.
40
The norm of generalized commitment can be seen as a device for coping
with the conflictual implications of uncertainty by imposing favorable as-
sumptions about others' future behavior. The norm of generalized commit-
ment requires that one accept the veil of ignorance but act as if one will
benefit from others' behavior in the future if one behaves now in a regime-
supporting way. Thus it creates a coordination game by ruling out potentially
antagonistic calculations.
Yet in many situations in world politics, specific and calculable conflicts
of interest exist among the actors. In such situations, they all have an inter-
est in agreement (the situation is not zero-sum), but they prefer different
types of agreement or different patterns of behavior (e.g., one may prefer to
39
The classic discussion is in Thomas C. Schelling, The Strategy of Conflict (1960; Cam-
bridge: Harvard University Press, 1980), chap. 4, "Toward a Theory of Interdependent Deci-
sion." See also Schelling, Micromotives and Macrobehavior (New York: Norton, 1978).
40
For an interesting discussion of regimes in these terms, see the paper in this volume by
Oran R. Young. On conventions, see David K. Lewis, Convention: A Philosophical Study
(Cambridge: Cambridge University Press, 1969).
cheat without the other being allowed to do so). As Stein points out in this
volume, these situations are characterized typically by unstable equilibria.
Without enforcement, actors have incentives to deviate from the agreement
point:
[Each] actor requires assurances that the other will also eschew its
rational choice [and will not cheat, and] such collaboration requires a
degree of formalization. The regime must specify what constitutes
cooperation and what constitutes cheating.
41
In such situations of strategic interaction, as in oligopolistic competition
and world politics, systemic constraint-choice theory yields no determinate
results or stable equilibria. Indeed, discussions of "blackmailing" or games
such as "prisoners' dilemma" indicate that, under certain conditions, sub-
optimal equilibria are quite likely to appear. Game theory, as Simon has
commented, only illustrates the severity of the problem; it does not solve
it.
Under these circumstances, power factors are important. They are par-
ticularly relevant to the supply of international regimes: regimes involving
enforcement can only be supplied if there is authority backed by coercive
resources. As we have seen, regimes themselves do not possess such re-
sources. For the means necessary to uphold sanctions, one has to look to the
states belonging to the regime.
Yet even under conditions of strategic interaction and unstable equilib-
ria, regimes may be of value to actors by providing information. Since high-
quality information reduces uncertainty, we can expect that there will be a
demand for international regimes that provide such information.
Firms that consider relying on the behavior of other firms within a con-
text of strategic interactionfor instance, in oligopolistic competitionface
similar information problems. They also do not understand reality fully. Stu-
dents of market failure have pointed out that risk-averse firms will make
fewer and less far-reaching agreements than they would under conditions of
perfect information. Indeed, they will eschew agreements that would pro-
duce mutual benefits. Three specific problems facing firms in such a context
are also serious for governments in world politics and give rise to demands
for international regimes to ameliorate them.
(7) Asymmetric information. Some actors may have more information
about a situation than others. Expecting that the resulting bargains would be
unfair, "outsiders" may therefore be reluctant to make agreements with
"insiders."
43
One aspect of this in the microeconomic literature is "quality
uncertainty," in which a buyer is uncertain about the real value of goods
41
Arthur A. Stein, article in this volume, p. 312.
42
Herbert Simon, "From Substantive to Procedural Rationality," in Latsis, ed., Method and
Appraisal in Economics; Spiro J. Latsis, "A Research Programme in Economics," in ibid.; and
on blackmailing, Oye, "The Domain of Choice."
43
Oliver E. Williamson, Markets and Hierarchies: Analysis and Anti-Trust Implications
(New York: Free Press, 1975).
being offered. In such a situation (typified by the market for used cars when
sellers are seen as unscrupulous), no exchange may take place despite the
fact that with perfect information, there would be extensive trading.
44
(2) Moral hazard. Agreements may alter incentives in such a way as to
encourage less cooperative behavior. Insurance companies face this prob-
lem of "moral hazard." Property insurance, for instance, may make people
less careful with their property and therefore increase the risk of loss.
45
(3) Deception and irresponsibility. Some actors may be dishonest, and
enter into agreements that they have no intention of fulfilling. Others may be
"irresponsible," and make commitments that they are unlikely to be able to
carry out. Governments or firms may enter into agreements that they intend
to keep, assuming that the environment will continue to be benign; if adver-
sity sets in, they may be unable to keep their commitments. Banks regularly
face this problem, leading them to devise standards of "creditworthiness."
Large governments trying to gain adherents to international agreements may
face similar difficulties: countries that are enthusiastic about cooperation are
likely to be those that expect to gain more, proportionately, than they con-
tribute. This is analogous to problems of self-selection in the market-failure
literature. For instance, if rates are not properly adjusted, people with high
risks of heart attack will seek life insurance more avidly than those with
longer life expectancies; people who purchased "lemons" will tend to sell
them earlier on the used-car market than people with "creampuffs."
48
In
international politics, self-selection means that for certain types of
activitiesfor example, sharing research and development information
weak states (with much to gain but little to give) may have greater incentives
to participate than strong ones. But without the strong states, the enterprise
as a whole will fail. From the perspective of the outside observer, irrespon-
sibility is an aspect of the problem of public goods and free-riding;
47
but from
the standpoint of the actor trying to determine whether to rely on a poten-
tially irresponsible partner, it is a problem of uncertainty and risk. Either
way, information costs may prevent mutually beneficial agreement, and the
presence of these costs will provide incentives to states to demand interna-
tional regimes (either new regimes or the maintenance of existing ones) that
will ameliorate problems of uncertainty and risk.
4. Information, openness, and communication in international regimes
International regimes, and the institutions and procedures that develop
in conjunction with them, perform the function of reducing uncertainty and
44
George A. Ackerlof, "The Market for 'Lemons': Qualitative Uncertainty and the Market
Mechanism," Quarterly Journal of Economics 84,3 (August 1970).
45
Arrow, Essays in the Theory of Risk-Bearing.
46
Ackerlof, "The Market for 'Lemons' "; Arrow, Essays in the Theory of Risk-Bearing.
47
For an analysis along these lines, see Davis B. Bobrow and Robert T. Kudrle, "Energy
R&D: In Tepid Pursuit of Collective Goods," International Organization 33,2 (Spring 1979):
149-76.
risk by linking discrete issues to one another and by improving the quantity
and quality of information available to participants. Linking issues is impor-
tant as a way to deal with potential deception. Deception is less profitable in
a continuing "game," involving many issues, in which the cheater's behav-
ior is closely monitored by others and in which those actors retaliate for
deception with actions in other areas, than in a "single-shot" game. The
larger the number of issues in a regime, or linked to it, and the less important
each issue is in proportion to the whole, the less serious is the problem of
deception likely to be.
Another means of reducing problems of uncertainty is to increase the
quantity and quality of communication, thus alleviating the information
problems that create risk and uncertainty in the first place. Williamson ar-
gues on the basis of the organization theory literature that communication
tends to increase adherence to group goals: "Although the precise statement
of the relation varies slightly, the general proposition that intragroup com-
munication promotes shared goals appears to be a well-established empirical
finding."
48
Yet not all communication is of equal value: after all, communi-
cation may lead to asymmetrical or unfair bargaining outcomes, deception,
or agreements entered into irresponsibly. And in world politics, govern-
mental officials and diplomats are carefully trained to communicate precisely
what they wish to convey rather than fully to reveal their preferences and
evaluations. Effective communication is not measured well by the amount of
talking that used-car salespersons do to customers or that governmental offi-
cials do to one another in negotiating international regimes. Strange has
commented, perhaps with some exaggeration:
One of the paradoxes of international economic relations in the 1970s
has been that the soft words exchanged in trade organizations have
coexisted with hard deeds perpetuated by national governments. The
reversion to economic nationalism has been accompanied by constant
reiterations of continued commitment to international cooperation and
consultation. The international bureaucracies of Geneva, New York,
Paris and Brussels have been kept busier than ever exchanging papers
and proposals and patiently concocting endless draft documents to
which, it is hoped, even deeply divided states might subscribe. But the
reality has increasingly been one of unilateral action, even where policy
is supposedly subject to multilateral agreement.
49
The information that is required in entering into an international regime
is not merely information about other governments' resources and formal
negotiating positions, but rather knowledge of their internal evaluations of
the situation, their intentions, the intensity of their preferences, and their
48
Oliver E. Williamson, "A Dynamic Theory of Interfirm Behavior," Quarterly Journal of
Economics 79 (1965), p. 584.
49
Susan Strange, "The Management of Surplus Capacity: or How Does Theory Stand Up to
Protectionism 1970s Style?", International Organization 33,3 (Summer 1979): 303-334.
willingness to adhere to an agreement even in adverse future circumstances.
As Hirsch points out with respect to the "Bagehot Problem" in banking,
lenders need to know the moral as well as the financial character of borrow-
ers.
50
Likewise, governments contemplating international cooperation need
to know their partners, not merely know about them.
This line of argument suggests that governments that successfully
maintain "closure," protecting the autonomy of their decision-making pro-
cesses from outside penetration, will have more difficulty participating in
international regimes than more open, apparently disorganized governments.
"Closed" governments will be viewed with more skepticism by poten-
tial partners, who will anticipate more serious problems of bounded ration-
ality in relations with these closed governments than toward their more
open counterparts. Similarly, among given governments, politicization of is-
sues and increases in the power of political appointees are likely to reduce
the quality of information and will therefore tend to reduce cooperation.
Thus as an issue gains salience in domestic politics, other governments will
begin to anticipate more problems of bounded rationality and will therefore
perceive greater risks in cooperation. International cooperation may there-
fore decline quite apart from the real intentions or objectives of the policy
makers involved.
This conclusion is important: international policy coordination and the
development of international regimes depend not merely on interests and
power, or on the negotiating skills of diplomats, but also on expectations and
information, which themselves are in part functions of the political struc-
tures of governments and their openness to one another. Intergovernmental
relationships that are characterized by ongoing communication among
working-level officials, "unauthorized" as well as authorized, are inherently
more conducive to information-exchange and agreements than are tra-
ditional relationships between internally coherent bureaucracies that effec-
tively control their communications with the external world.
51
Focusing on information and risk can help us to understand the perfor-
mance of international regimes over time, and therefore to comprehend
better the sources of demands for such regimes. Again, reference to theories
of oligopoly, as in Williamson's work, is helpful. Williamson assumes that
cooperationwhich he refers to as "adherence to group goals"will be a
function both of communication and of the past performance of the
oligopoly; reciprocally, communication levels will be a function of coopera-
tion. In addition, performance will be affected by the condition of the envi-
ronment. Using these assumptions, Williamson derives a model that has two
points of equilibrium, one at high levels and one at low levels of cooperation.
50
Fred Hirsch, "The Bagehot Problem," The Manchester School 45,3 (1977): 241-57.
51
Notice that here, through a functional logic, a systemic analysis has implications for the
performance of different governmental structures at the level of the actor. The value of high-
quality information in making agreements does not force governments to become more open,
but it gives advantages to those that do.
His oligopolies are characterized by substantial inertia. Once a given equilib-
rium has been reached, substantial environmental changes are necessary to
alter it:
If the system is operating at a low level of adherence and communica-
tion (i.e., the competitive solution), a substantial improvement in the
environment will be necessary before the system will shift to a high level
of adherence and communication. Indeed, the condition of the environ-
ment required to drive the system to the collusive solution is much
higher than the level required to maintain it once it has achieved this
position. Similarly, a much more unfavorable condition of the environ-
ment is required to move the system from a high to a low level equilib-
rium than is required to maintain it there.
52
It seems reasonable to suppose that Williamson's assumptions about
relationships among communication, cooperation or adherence, and perfor-
mance have considerable validity for international regimes as well as for
cartels. If so, his emphasis on the role of information, for explaining persis-
tent behavior (competitive or oligopolistic) by groups of firms, helps us to
understand the lags between structural change and regime change that are so
puzzling to students of international regimes. In our earlier work, Nye and I
observed discrepancies between the predictions of structural models (such
as what I later called the "theory of hegemonic stability") and actual pat-
terns of change; in particular, changes in international regimes tend to lag
behind changes in structure.
53
But our explanation for this phenomenon was
essentially ad hoc: we simply posited the existence of inertia, assuming that
"a set of networks, norms, and institutions, once established, will be
difficult either to eradicate or drastically to rearrange."
54
Understanding the
role of communication and information in the formation and maintenance of
international regimes helps locate this observation in a theoretical context.
The institutions and procedures that develop around international regimes
acquire value as arrangements permitting communication, and therefore
facilitating the exchange of information. As they prove themselves in this
way, demand for them increases. Thus, even if the structure of a system
becomes more fragmentedpresumably increasing the costs of providing
regime-related collective goods (as suggested by public goods theory)
increased demand for a particular, well-established, information-providing
international regime may, at least for a time, outweigh the effects of in-
creasing costs on supply.
These arguments about information suggest two novel interpretations of
puzzling contemporary phenomena in world politics, as well as providing the
52
Williamson, "A Dynamic Theory of Interfirm Behavior," p. 592, original italics.
53
Power and Interdependence, especially pp. 54-58 and 146-53. Linda Cahn also found lags,
particularly in the wheat regime; see "National Power and International Regimes."
54
Power and Interdependence, p. 55.
basis for hypotheses that could guide research on fluctuations in the strength
and extent of international regimes.
Understanding the value of governmental openness for making mutually
beneficial agreements helps to account for the often-observed fact that ef-
fective international regimessuch as the GATT in its heyday, or the Bret-
ton Woods international monetary regime
55
are often associated with a
great deal of informal contact and communication among officials. Govern-
ments no longer act within such regimes as unitary, self-contained actors.
"Transgovernmental" networks of acquaintance and friendship develop,
with the consequences that supposedly confidential internal documents of
one government may be seen by officials of another; informal coalitions of
like-minded officials develop to achieve common purposes; and critical dis-
cussions by professionals probe the assumptions and assertions of state
policies.
56
These transgovernmental relationships increase opportunities for
cooperation in world politics by providing policy makers with high-quality
information about what their counterparts are likely to do. Insofar as they
are valued by policy makers, they help to generate demand for international
regimes.
The information-producing "technology" that becomes embedded in a
particular international regime also helps us to understand why the erosion
of American hegemony during the 1970s has not been accompanied by an
immediate collapse of international regimes, as a theory based entirely on
supply-side public goods analysis would have predicted. Since the level of
institutionalization of postwar regimes was exceptionally high, with intricate
and extensive networks of communication among working-level officials, we
should expect the lag between the decline of American hegemony and the
disruption of international regimes to be quite long and the "inertia" of the
existing regimes relatively great.
The major hypothesis to be derived from this discussion of information
is that demand for international regimes should be in part a function of the
effectiveness of the regimes themselves in providing high-quality informa-
tion to policy makers. The success of the institutions associated with a
regime in providing such information will itself be a source of regime
persistence.
Three inferences can be made from this hypothesis. First, regimes ac-
companied by highly regularized procedures and rules will provide more in-
formation to participants than less regularized regimes and will therefore, on
55
On the GATT, see Gardner Patterson, Discrimination in International Trade: The Policy
Issues (Princeton: Princeton University Press, 1966); on the international monetary regime, see
Robert W. Russell, "Transgovernmental Interaction in the International Monetary System,
1960-1972," International Organization 21,4 (Autumn 1973) and Fred Hirsch, Money Interna-
tional, rev. ed. (Harmondsworth, England: Pelican Books, 1969), especially chap. 11, "Central
Bankers International."
86
Robert O. Keohane and Joseph S. Nye, "Transgovernmental Relations and International
Organizations," World Politics 21,\ (October 1974): 39-62.
information grounds, be in greater demand. Thus, considerations of high-
quality information will help to counteract the normal tendencies of states to
create vague rules and poorly specified procedures as a way of preventing
conflict or maintaining freedom of action where interests differ.
Second, regimes that develop norms internalized by participantsin
particular, norms of honesty and straightforwardnesswill be in greater
demand and will be valued more than regimes that fail to develop such
norms.
Third, regimes that are accompanied by open governmental arrange-
ments and are characterized by extensive transgovernmental relations will
be in greater demand and will be valued more than regimes whose relation-
ships are limited to traditional state-to-state ties.
57
Perhaps other nontrivial inferences can also be drawn from the basic
hypothesis linking a regime's information-provision with actors' demands
for it. In any event, this emphasis on information turns our attention back
toward the regime, and the process of institutionalization that accompanies
regime formation, and away from an exclusive concern with the power
structure of world politics. The extent to which institutionalized cooperation
has been developed will be an important determinant, along with power-
structural conditions and issue density, of the extent and strength of interna-
tional regimes.
From a future-oriented or policy perspective, this argument introduces
the question of whether governments (particularly those of the advanced
industrial countries) could compensate for the increasing fragmentation of
power among them by building communication-facilitating institutions that
are rich in information. The answer depends in part on whether hegemony is
really a necessary condition for effective international cooperation or only a
facilitative one. Kindleberger claims the former, but the evidence is incon-
clusive.
58
Analysis of the demand for international regimes, focusing on
questions of information and transactions costs, suggests the possibility that
international institutions could help to compensate for eroding hegemony.
International regimes could not only reduce the organization costs and other
transactions costs associated with international negotiations; they could also
provide information that would make bargains easier to strike.
How effectively international regimes could compensate for the erosion
of hegemony is unknown. Neither the development of a theory of interna-
tional regimes nor the testing of hypotheses derived from such a theory is
likely to resolve the question in definitive terms. But from a contemporary
policy standpoint, both theory development and theory testing would at least
57
These first three inferences focus only on the demand side. To understand the degree to
which norms, for example, will develop, one needs also to look at supply considerations. Prob-
lems of organization, such as those discussed in the public goods literature and the theory of
hegemonic stability, may prevent even strongly desired regimes from materializing.
58
Kindleberger has asserted that "for the world economy to be stabilized, there has to be a
stabilizer, one stabilizer." The World in Depression, p. 305.
help to define the dimensions of the problem and provide some guidance for
thinking about the future consequences of present actions.
5. Coping with uncertainties: insurance regimes
Creating international regimes hardly disposes of risks or uncertainty.
Indeed, participating in schemes for international cooperation entails risk for
the cooperating state. If others fail to carry out their commitments, it may
suffer. If (as part of an international growth scheme) it reflates its economy
and others do not, it may run a larger-than-desired current-account deficit; if
it liberalizes trade in particular sectors and its partners fail to reciprocate,
import-competing industries may become less competitive without compen-
sation being received elsewhere; if it curbs bribery by its multinational cor-
porations without comparable action by others, its firms may lose markets
abroad. In world politics, therefore, governments frequently find themselves
comparing the risks they would run from lack of regulation of particular
issue-areas (i.e., the absence of international regimes) with the risks of en-
tering into such regimes. International regimes are designed to mitigate the
effects on individual states of uncertainty deriving from rapid and often un-
predictable changes in world politics. Yet they create another kind of un-
certainty, uncertainty about whether other governments will keep their
commitments.
In one sense, this is simply the old question of dependence: dependence
on an international regime may expose one to risks, just as dependence on
any given state may. Governments always need to compare the risks they
run by being outside a regime with the risks they run by being within one. If
the price of achieving short-term stability by constructing a regime is in-
creasing one's dependence on the future decisions of others, that price may
be too high.
Yet the question of coping with risk also suggests the possibility of dif-
ferent types of international regimes. Most international regimes are
control-oriented. Through a set of more or less institutionalized arrange-
ments, members maintain some degree of control over each other's behav-
ior, thus decreasing harmful externalities arising from independent action as
well as reducing uncertainty stemming from uncoordinated activity. A nec-
essary condition for this type of regime is that the benefits of the regularity
achieved thereby must exceed the organizational and autonomy costs of
submitting to the rules, both for the membership as a whole and for each
necessary member.
Control-oriented regimes typically seek to ensure two kinds of regular-
ity, internal and environmental. Internal regularity refers to orderly patterns
of behavior among members of the regime. The Bretton Woods international
monetary regime and the GATT trade regime have focused, first of all, on
members' obligations, assuming that, if members behaved according to the
rules, the international monetary and trade systems would be orderly. Where
all significant actors within an issue-area are members of the regime, this
assumption is warranted and mutual-control regimes tend to be effective.
Yet there are probably few, if any, pure cases of mutual-control re-
gimes. Typically, an international regime is established to regularize behav-
ior not only among the members but also between them and outsiders. This
is a side-benefit of stable international monetary regimes involving converti-
ble currencies.
59
It was an explicit purpose of the nonproliferation regime of
the 1970s, in particular the "suppliers' club," designed to keep nuclear ma-
terial and knowledge from diffusing rapidly to potential nuclear powers.
Military alliances can be viewed as an extreme case of attempts at environ-
mental control, in which the crucial benefits of collaboration stem not from
the direct results of cooperation but from their effects on the behavior of
outsiders. Alliances seek to induce particular states of minds in nonmem-
bers, to deter or to intimidate.
Observers of world politics have often assumed implicitly that all
significant international regimes are control-oriented. The economic litera-
ture, however, suggests another approach to the problem of risk. Instead of
expanding to control the market, firms or individuals may diversify to reduce
risk or may attempt to purchase insurance against unlikely but costly con-
tingencies. Portfolio diversification and insurance thus compensate for
deficiencies in markets that lack these institutions. Insurance and di-
versification are appropriate strategies where actors cannot exercise control
over their environment at reasonable cost, but where, in the absence of such
strategies, economic activity would be suboptimal.
60
In world politics, such strategies are appropriate under similar condi-
tions. The group of states forming the insurance or diversification "pool" is
only likely to resort to this course of action if it cannot control its environ-
ment effectively. Second, for insurance regimes to make sense, the risks
insured against must be specific to individual members of the group. If the
catastrophic events against which one wishes to insure are likely (should
they occur at all) to affect all members simultaneously and with equal sever-
ity, risk sharing will make little sense.
61
59
Charles P. Kindleberger, "Systems of International Economic Organization," in David P.
Calleo, ed., Money and the Coming World Order (New York: New York University Press for
the Lehman Institute, 1978); Ronald McKinnon, Money in International Exchange: The Con-
vertible Currency System (New York: Oxford University Press, 1979).
60
Arrow, Essays in the Theory of Risk-Bearing, pp. 134-43.
61
In personal correspondence, Robert Jervis has suggested an interesting qualification to this
argument. He writes: "If we look at relations that involve at least the potential for high conflict,
then schemes that tie the fates of all the actors together may have utility even if the actors are
concerned about catastrophic events which will affect them all. They can worry that if some
states are not affected, the latter will be much stronger than the ones who have been injured. So
it would make sense for them to work out a scheme which would insure that a disaster would not
affect their relative positions, even though this would not mean that they would all not be worse
off in absolute terms." The point is certainly well taken, although one may wonder whether
such an agreement would in fact be implemented by the states that would make large relative
gains in the absence of insurance payments.
International regimes designed to share risks are less common than
those designed to control events, but three examples from the 1970s can be
cited that contain elements of this sort of regime:
(1) The STABEX scheme of the Lome Convention, concluded between
the European Community and forty-six African, Caribbean, and Pacific
states in 1975. "Under the STABEX scheme, any of the 46 ACP countries
dependent for more than 7.5 percent (2.5 percent for the poorest members of
the ACP) of their export earnings on one of a list of commodities, such as
tea, cocoa, coffee, bananas, cotton, and iron ore, will be eligible for financial
help if these earnings fall below a certain level."
62
STABEX, of course, is
not a genuine mutual-insurance regime because the guarantee is made by one
set of actors to another set.
(2) The emergency sharing arrangements of the International Energy
Agency, which provide for the mandatory sharing of oil supplies in emergen-
cies, under allocation rules devised and administered by the IEA.
63
(3) The Financial Support Fund of the OECD, agreed on in April 1975
but never put into effect, which would have provided a "lender of last re-
sort" at the international level, so that risks on loans to particular countries
in difficulty would have been "shared among all members, in proportion to
their quotas and subject to the limits of their quotas, however the loans are
financed."
64
Control-oriented and insurance strategies for coping with risk and un-
certainty have different advantages and liabilities. Control-oriented ap-
proaches are more ambitious; when effective, they may eliminate adversity
rather than simply spread risks around. After all, it is more satisfactory to
prevent floods than merely to insure against them; likewise, it would be pref-
erable for consumers to be able to forestall commodity embargoes rather
than simply to share their meager supplies fairly if such an embargo should
take place.
Yet the conditions for an effective control-oriented regime are more
stringent than those for insurance arrangements. An effective control-
oriented regime must be supported by a coalition that has effective power in
the issue-area being regulated, and whose members have sufficient incen-
tives to exercise such power.
65
Where these conditions are not met, insur-
ance regimes may be "second-best" strategies, but they are better than no
strategies at all. Under conditions of eroding hegemony, one can expect the
increasing emergence of insurance regimes, in some cases as a result of the
62
Isebill V. Gruhn, "The Lome Convention: Inching toward Interdependence," Interna-
tional Organization 30,2 (Spring 1976), pp. 255-56.
63
Robert O. Keohane, "The International Energy Agency: State Influence and Trans-
govemmental Politics," International Organization 32,4 (Autumn 1978): 929-52.
64
OECD Observer, no. 74 (March-April 1975), pp. 9-13.
65
The optimal condition under which such a coalition may emerge could be called the "paper
tiger condition": a potential external threat to the coalition exists but is too weak to frighten or
persuade coalition members to defect or to desist from effective action. OPEC has been viewed
by western policy makers since 1973 as a real rather than paper tiger, although some observers
keep insisting that there is less to the organization than meets the eye.
unwillingness of powerful states to adopt control-oriented strategies (as in
the case of STABEX), in other cases as replacements for control-oriented
regimes that have collapsed (as in the cases of the IEA emergency sharing
arrangements and the OECD Financial Support Fund or "safety net"). Eco-
nomic theories of risk and uncertainty suggest that as power conditions shift,
so will strategies to manage risk, and therefore the nature of international
regimes.
6. Conclusions
The argument of this paper can be summarized under six headings.
First, international regimes can be interpreted, in part, as devices to facili-
tate the making of substantive agreements in world politics, particularly
among states. Regimes facilitate agreements by providing rules, norms,
principles, and procedures that help actors to overcome barriers to agree-
ment identified by economic theories of market failure. That is, regimes
make it easier for actors to realize their interests collectively.
Second, public goods problems affect the supply of international re-
gimes, as the "theory of hegemonic stability" suggests. But they also give
rise to demand for international regimes, which can ameliorate problems of
transactions costs and information imperfections that hinder effective de-
centralized responses to problems of providing public goods.
Third, two major research hypotheses are suggested by the demand-side
analysis of this article.
(a) Increased issue density will lead to increased demand for interna-
tional regimes.
(b) The demand for international regimes will be in part a function of
the effectiveness of the regimes themselves in developing norms of
generalized commitment and in providing high-quality information
to policymakers.
Fourth, our analysis helps us to interpret certain otherwise puzzling
phenomena, since our constraint-choice approach allows us to see how de-
mands for such behavior would be generated. We can better understand
transgovernmental relations, as well as the lags observed between structural
change and regime change in general, and between the decline of the United
States' hegemony and regime disruption in particular.
Fifth, in the light of our analysis, several assertions of structural theo-
ries appear problematic. In particular, it is less clear that hegemony is a
necessary condition for stable international regimes under all circumstances.
Past patterns of institutionalized cooperation may be able to compensate, to
some extent, for increasing fragmentation of power.
Sixth, distinguishing between conventional control-oriented interna-
tional regimes, on the one hand, and insurance regimes, on the other, may
help us to understand emerging adaptations of advanced industrialized
countries to a global situation in which their capacity for control over events
is much less than it was during the postwar quarter-century.
None of these observations implies an underlying harmony of interests
in world politics. Regimes can be used to pursue particularistic and parochial
interests, as well as more widely shared objectives. They do not necessarily
increase overall levels of welfare. Even when they do, conflicts among units
will continue. States will attempt to force the burdens of adapting to change
onto one another. Nevertheless, as long as the situations involved are not
constant-sum, actors will have incentives to coordinate their behavior, im-
plicitly or explicitly, in order to achieve greater collective benefits without
reducing the utility of any unit. When such incentives exist, and when
sufficient interdependence exists that ad hoc agreements are insufficient,
opportunities will arise for the development of international regimes. If in-
ternational regimes did not exist, they would surely have to be invented.

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