international legal scholarship. In fact, like Moliere's Bourgeois Gentilhomme, international lawyers may find to their surprise that they have always spoken new institutional economics, as one of our principal tools of analysis is comparison. On the other hand, we would not be writing this paper if we did not feel that the new institutional economics offers substantial counterintuitive B. Political Prejudices and the Subordination of Non-Economic Values Much criticism of economic analysis on the domestic level focuses on the alleged political biases inherent in this form of analysis 15 Thus, critics have objected to economics alleged conservative political positions. Stated most broadly, economic analysis is often d/smss an or commitment to laissez-faire economic policy, or supposed ideological allegiance to libertaria providing an ideological justification for the unconsidered rejection of government intervention Similarly, economic analysis may be rejected for its supposed elevation of the market, and the economic values that are maximized in market settings, at the expense of other important values. This argument would suggest that economic analysis cannot adequately account for difficult to quantify or incommensurable social values, and necessarily devalues or subordinates those values to economic values apply all L&E methodologies to international legal issues. First, the methodologies that we find Rather, the methodologies we focus on presuppose the potential validity -both the legitimace and the efficiency --of government processes. 16 Contrary to the claims of the critics, in the methodologies we focus on"neither market nor nonmarket forms of organization are primary. 17 Instead under this understanding, legislation -- no less than the market--is a mechanism for preference revelation. However, both the market and the law( the state) are imperfect as such mechanisms. The methologies we explore take as central(and open )the question of which Economic Growth 25 ECoN. INQUIRY 419(1987); Douglass North, The New Institutional Economics, 142 J. INST& THEORETICAL ECoN. 230(1986); Oliver Williamson, Comparative Economic Organization: The Analysis of Discrete Structural Alternatives, 36 ADMIN. SCL. Q. 219 (1994) 15 Scholars from across the political spectrum share this view. See, e. g, George J. Stigler, The Politics of political Economists, in ESsAYS IN THE HISTORY OF ECONOMICS 51, 52(1965)(the professional study of economics makes one politically conservative"); Morton J. Horowitz, La to be a claim that economists tend to support decentralized markets over other institutions. Sees and Economics: Science or Politics?, 8 HOFSTRA L REv. 905(1980)(same). We understand Russell Hardin, Magic on the Frontier: The Norm of efficiency, 144 U PA. L REV. 1987, 2014 (1996). As explained more fully in text, we think this charge of conservative bias cannot fairly be levelled against the methodologies we find most promising 16 See DONALD WITTMAN, THE MYTH OF DEMOCRATIC FAILURE (1995) 17 Guido Calabresi, The Pointlessness of Pareto: Carrying Coase Further, 100 YALE L J 12l1,1214(1991)
international legal scholarship. In fact, like Moliere’s Bourgeois Gentilhomme, international lawyers may find to their surprise that they have always spoken new institutional economics, as one of our principal tools of analysis is comparison. On the other hand, we would not be writing this paper if we did not feel that the new institutional economics offers substantial counterintuitive insights. B. Political Prejudices and the Subordination of Non-Economic Values Much criticism of economic analysis on the domestic level focuses on the alleged political biases inherent in this form of analysis.15 Thus, critics have objected to economics’ alleged commitment to laissez-faire economic policy, or supposed ideological allegiance to libertarian or conservative political positions. Stated most broadly, economic analysis is often dismissed as providing an ideological justification for the unconsidered rejection of government intervention. Similarly, economic analysis may be rejected for its supposed elevation of the market, and the economic values that are maximized in market settings, at the expense of other important values. This argument would suggest that economic analysis cannot adequately account for difficult to quantify or incommensurable social values, and necessarily devalues or subordinates those values to economic values. Again, however, we believe that these related objections do not fatally undermine efforts to apply all L&E methodologies to international legal issues. First, the methodologies that we find most promising do not have a “bias” against government regulation and/or in favor of the market. Rather, the methodologies we focus on presupppose the potential validity -- both the legitimacy and the efficiency -- of government processes.16 Contrary to the claims of the critics, in the methodologies we focus on “neither market nor nonmarket forms of organization are primary.”17 Instead, under this understanding, legislation -- no less than the market -- is a mechanism for preference revelation. However, both the market and the law (the state) are imperfect as such mechanisms. The methologies we explore take as central (and open) the question of which Economic Growth 25 ECON. INQUIRY 419 (1987); Douglass North, The New Institutional Economics, 142 J. INST. & THEORETICAL ECON. 230 (1986); Oliver Williamson, Comparative Economic Organization: The Analysis of Discrete Structural Alternatives, 36 ADMIN. SCI. Q. 219 (1994). 15 Scholars from across the political spectrum share this view. See, e.g, George J. Stigler, The Politics of Political Economists, in ESSAYS IN THE HISTORY OF ECONOMICS 51, 52 (1965) (“the professional study of economics makes one politically conservative”); Morton J. Horowitz, Law and Economics: Science or Politics?, 8 HOFSTRA L. REV. 905 (1980) (same). We understand this to be a claim that economists tend to support decentralized markets over other institutions. See Russell Hardin, Magic on the Frontier: The Norm of Efficiency, 144 U. PA. L. REV. 1987, 2014 (1996). As explained more fully in text, we think this charge of conservative bias cannot fairly be levelled against the methodologies we find most promising. 16 See DONALD WITTMAN, THE MYTH OF DEMOCRATIC FAILURE (1995). 17 Guido Calabresi, The Pointlessness of Pareto: Carrying Coase Further, 100 YALE L.J. 1211, 1214 (1991). 6
institution, including potentially the market, ought to be used in any particular context To be sure, the government processes that might be used are not necessarily efficient in monetary or monetized terms: they might not pass a cost-benefit analysis that has regard only for monetary or monetized benefits. But this cannot be the measure of validity, as there are many values that are not readily monetizable but are worthy of expression, either in private conduct or in olitical action. 18 They are also worthy of being traded for monetary or monetized values, and law and economics as politically doctrinaire or ignorant of non-monetized values, and we argl wect such"trade" is presumptively efficient. We emphasize these points to reach out to those who rei that any dogma or ignorance is a political prejudice that is not necessitated by economic analysis ItSe While we believe, as explained below, that L&e analysis has much to say about questions of institutional choice, the actual decisions are, of course, made through political processes. It is in this sense that politics is the leading mechanism, as it still retains kompetenz-kompetenz to determine the border between its domain and that of the market, and the methods we examine do not question this priority of the political over the economic C. Positivism and the Denigration of International Law A fundamental tenet of law and economics is its positivism, meaning its emphasis on empiricism and analysis of the world as it is, as opposed to a"normative perspective on the world as it should be. The line between positive and normative economics is often unclear, as positive nalysis is often motivated by or used to support a normative critique. 19 While positivism is the sine qua non of social science, international lawyers have long done battle with a brand of international legal theory that is called positivist. Many international lawyers criticize this international legal positivist approach, as it tends to be skeptical of the effectiveness of international law, and has often enshrined state sovereignty as a kind of summum bonum. Those critical of international legal positivism might see little reason to expect economic positivist methodologies to illuminate international legal issues. Again, however, we think this objection to the use of l&e methodologies lacks force. In particular, it confuses the positivism of law and economics with other forms of positivism To the extent that international lawyers confront positivism, it is often in the context of Westphalian20 positivist view of the world: a world of billiard ball states that interact only with 18"Maximum national income, however, is not the only goal of our nation as judged by policies adopted by our govermnment-and government's goals as revealed by s stigle& cosT 9. at 459. See also AvINaSh DIXIT. THE MAKING OF ECONOMIC POLICY: A TRANSACTION-COST POLITICS PERSPECTIVE(1996) 19 See Daniel A Farber, Positive Theory as Normative Critique, 68 S. CAL L. REV. 1565 (1995).Indeed, many deny a strong distinction between positive and normative discourse arguing that a strong distinction takes inadequate account of the relationship between the observer and the observation See, e.g., ROGER TRIGG, UNDERSTANDING SOCIAL SCIENCE: A pHILOSOPhICAL INTRODUCTION TO THE SOCIAL SCIENCES (1985) 20 Leo gross, The Peace of Westphalia, 1648-1948, 42 AM. J. INT LL. 20(1948)
“institution,” including potentially the market, ought to be used in any particular context. To be sure, the government processes that might be used are not necessarily efficient in monetary or monetized terms: they might not pass a cost-benefit analysis that has regard only for monetary or monetized benefits. But this cannot be the measure of validity, as there are many values that are not readily monetizable, but are worthy of expression, either in private conduct or in political action.18 They are also worthy of being traded for monetary or monetized values, and such “trade” is presumptively efficient. We emphasize these points to reach out to those who reject law and economics as politically doctrinaire or ignorant of non-monetized values, and we argue that any dogma or ignorance is a political prejudice that is not necessitated by economic analysis itself. While we believe, as explained below, that L&E analysis has much to say about questions of institutional choice, the actual decisions are, of course, made through political processes. It is in this sense that politics is the leading mechanism, as it still retains kompetenz-kompetenz to determine the border between its domain and that of the market, and the methods we examine do not question this priority of the political over the economic. C. Positivism and the Denigration of International Law A fundamental tenet of law and economics is its positivism, meaning its emphasis on empiricism and analysis of the world as it is, as opposed to a “normative” perspective on the world as it should be. The line between positive and normative economics is often unclear, as positive analysis is often motivated by or used to support a normative critique.19 While positivism is the sine qua non of social science, international lawyers have long done battle with a brand of international legal theory that is called positivist. Many international lawyers criticize this international legal positivist approach, as it tends to be skeptical of the effectiveness of international law, and has often enshrined state sovereignty as a kind of summum bonum. Those critical of international legal positivism might see little reason to expect economic positivist methodologies to illuminate international legal issues. Again, however, we think this objection to the use of L&E methodologies lacks force. In particular, it confuses the positivism of law and economics with other forms of positivism. To the extent that international lawyers confront positivism, it is often in the context of the Westphalian20 positivist view of the world: a world of billiard ball states that interact only with one 18 “Maximum national income, however, is not the only goal of our nation as judged by policies adopted by our government--and government’s goals as revealed by actual practice are more authoritative than those pronounced by professors of law or economics.” Stigler, supra note 9, at 459. See also AVINASH DIXIT, THE MAKING OF ECONOMIC POLICY: A TRANSACTION-COST POLITICS PERSPECTIVE (1996). 19 See Daniel A. Farber, Positive Theory as Normative Critique, 68 S. CAL. L. REV. 1565 (1995). Indeed, many deny a strong distinction between positive and normative discourse, arguing that a strong distinction takes inadequate account of the relationship between the observer and the observation. See, e.g., ROGER TRIGG, UNDERSTANDING SOCIAL SCIENCE: A PHILOSOPHICAL INTRODUCTION TO THE SOCIAL SCIENCES (1985) 20 Leo Gross, The Peace of Westphalia, 1648-1948, 42 AM. J. INT' L L. 20 (1948) 7
another. Moreover, this Westphalian positivist view is often associated with the dominant anarchic, self-styled"realist" perspective on international relations that holds that these states are not bound by law, as they themselves maintain a monopoly on coercive force. However, this perspective is neither truly realist nor truly positivist This is why many international lawyers and international legal scholars reject the Westphalian positivist model. They argue that the model either ignores--or cannot expla many of the most important phenomena on the international legal scene, including the rise of non the binding force of international law. Thus, there is little room in Westphalian positiVIsm 6 s, and state actors, the importance and, at times, relative independence, of international organization binding treaties to allocate regulatory authority or for the pooling of regulatory authority in interests that motivated them; they are epiphenomenal to the power and interest equation rm international organizations. In this model, these agreements only last as long as the short-te lains egotistical state action of the moment. 21 There is little room for the incursions on sovereignty experienced in the European Union, or for the strengthened dispute resolution of the World Trade Organization(WTO), or for many of the other institutions that constitute the core of what international lawyers do and study. In this sense, international lawyers rightly understand positivism to turn a blind eye to precisely those phenomena that interest them the most is very different from the positivism associated with Westphalian realism. While Westphalia eE But"positivism"has different meanings in different disciplines, and the positivism ofL&E positivism is state centric, L&e positivism rests upon methodological individualism. 22 Methodological individualism assumes that each person is in charge of his or her own utility function and is a rational evaluative maximizer. 23 It posits no values other than that of individual choice. Methodological individualism, otherwise known as consumer sovereignty(perhaps more felicitously termed"individual sovereignty in a world in which markets are not the sole forum for revelation of preferences), is a cosmopolitan concept that stands in opposition to the state sovereignty erected by Westphalian positivism Methodological individualism easily lends itself to contractarian approaches to issues involving cooperation and/or conflict. Analogizing from the domestic to the international, the 21 See James E. Alt Lisa L. Martin, Contracting and the possibility of multilateral Enforcement, 150 J INST& THEo EcoN. 265(1994) n a Realist framework, institutions have no power to bind states or even significantly change the constraints in which they operate Hegemonic stability theory would predict that institutions will only be stable and effective as long as the distribution of power underlying their construction remains stable ld.at265-66 22 See, e.g, JAMES M. BUCHANAN, EXPLORATIONS INTO CONSTITUTIONAL ECONOMICS (1989) assumption, it still provides the basis for most models. This rationalism entails self-interes this 23 Although economists and other social scientists are studying the limits and domain of although neither the definition of"self" nor the definition of"interest" is uncontested. Rather, self- interest is being re-examined, to accommodate behavior that seems or is normative, altruistic self-abnegating
another. Moreover, this Westphalian positivist view is often associated with the dominant anarchic, self-styled “realist” perspective on international relations that holds that these states are not bound by law, as they themselves maintain a monopoly on coercive force. However, this perspective is neither truly realist nor truly positivist. This is why many international lawyers and international legal scholars reject the Westphalian positivist model. They argue that the model either ignores -- or cannot explain -- many of the most important phenomena on the international legal scene, including the rise of nonstate actors, the importance and, at times, relative independence, of international organizations, and the binding force of international law. Thus, there is little room in Westphalian positivism for binding treaties to allocate regulatory authority, or for the pooling of regulatory authority in international organizations. In this model, these agreements only last as long as the short-term interests that motivated them; they are epiphenomenal to the power and interest equation that explains egotistical state action of the moment.21 There is little room for the incursions on sovereignty experienced in the European Union, or for the strengthened dispute resolution of the World Trade Organization (“WTO”), or for many of the other institutions that constitute the core of what international lawyers do and study. In this sense, international lawyers rightly understand positivism to turn a blind eye to precisely those phenomena that interest them the most. But “positivism” has different meanings in different disciplines, and the positivism of L&E is very different from the positivism associated with Westphalian realism. While Westphalian positivism is state centric, L&E positivism rests upon methodological individualism.22 Methodological individualism assumes that each person is in charge of his or her own utility function and is a rational evaluative maximizer.23 It posits no values other than that of individual choice. Methodological individualism, otherwise known as consumer sovereignty (perhaps more felicitously termed “individual sovereignty” in a world in which markets are not the sole forum for revelation of preferences), is a cosmopolitan concept that stands in opposition to the state sovereignty erected by Westphalian positivism. Methodological individualism easily lends itself to contractarian approaches to issues involving cooperation and/or conflict. Analogizing from the domestic to the international, the 21 See James E. Alt & Lisa L. Martin, Contracting and the Possibility of Multilateral Enforcement, 150 J. INST. & THEO. ECON. 265 (1994): In a Realist framework, institutions have no power to bind states or even significantly change the constraints in which they operate. . . . Hegemonic stability theory would predict that institutions will only be stable and effective as long as the distribution of power underlying their construction remains stable. Id. at 265-66. 22 See, e.g., JAMES M. BUCHANAN, EXPLORATIONS INTO CONSTITUTIONAL ECONOMICS (1989). 23 Although economists and other social scientists are studying the limits and domain of this assumption, it still provides the basis for most models. This rationalism entails self-interest, although neither the definition of “self” nor the definition of “interest” is uncontested. Rather, selfinterest is being re-examined, to accommodate behavior that seems or is normative, altruistic or self-abnegating. 8
positivism associated with economic analysis easily lends itself to treaty or institutional responses to international issues involving cooperation and/or conflict positivism associated with economic analysis tends to highlight--rather ignore- the treaties institutions and other international legal phenomena that are most interesting to international lega scholars. 24 In short, the most common reasons advanced for not exploring whether L&e might enrich our understanding of international law are not persuasive. The l&e methodologies most likely to be useful are not terribly exotic and, in fact, have a structure and focus that should be familiar to opposed to the state or for economic values as opposed to other values. To the contrary, theseas international lawyers. In addition, these methodologies do not have a bias in favor of the market ethodologies take as central and contingent the question whether market or non-ma mechanisms are appropriate in any particular instance. Finally, these methodologies do not deny a role for, or the reality of, international law. Instead, they direct us towards the very phenomena that are already at the center of the international legal agenda. 25 AK Of course, demonstrating that arguments against the use of l&E analysis lack force is not, any reason to believe that L&e analysis will be useful to international lawyers. It is to this task we now turn The Structural Analogy: The Supra-Market of International Relations and Gains From Before engaging in the economic analysis of international legal problems, it is useful to explore whether international legal problems have some characteristics in common with those already addressed by law and economics. While it is not necessary for our purposes that the analogy be perfect, relevant similarities facilitate the transfer of tools from the domestic sphere to the international. Hence, we outline here the argument that transactions in international relations are analogous to transactions in private markets. In subsequent sections, we outline arguments for more specific analogies between particular international legal problems and particular domestic 24 Many lawyers may also object to another attribute of law and economics positivism: its insistence on the distinction between things as they are and things as they ought to be, between"is and"ought. While there is a general epistemological critique of this form of positivism, see, e.g TRIGG, supra note 20(explaining widespread rejection of positivism in many social science and philosophical traditions), lawyers have advanced arguments grounded in the claim that law ecessarily entails a normative dimension. As these debates have been thoroughly explored elsewhere, we do not revisit them here. See, e.g., Avery Weiner Katz, Positivism and the Separation of Law and Economics, 94 MICH. L. REV. 2229(1996); Anthony J Sebok Misunderstanding Positivism, 93 MICH. L REV. 2054(1995): Herbert Hovenkamp, Positivism in Law and EconomicS, 78 CAL L REV. 815(1990) 25 We do not intend these arguments as a defense of economic theory and methodology generally, including the utility of abstract modelling, the assumption of rationality and the use of the efficiency criterion. For more on these issues, see generally Milton Friedman, The Methodology of Positive Economics, in ESSAYS IN POSITIVE ECONOMICS 3(1953)
positivism associated with economic analysis easily lends itself to treaty-based or institutional responses to international issues involving cooperation and/or conflict. For this reason, the positivism associated with economic analysis tends to highlight -- rather than ignore -- the treaties, institutions and other international legal phenomena that are most interesting to international legal scholars.24 In short, the most common reasons advanced for not exploring whether L&E might enrich our understanding of international law are not persuasive. The L&E methodologies most likely to be useful are not terribly exotic and, in fact, have a structure and focus that should be familiar to international lawyers. In addition, these methodologies do not have a bias in favor of the market as opposed to the state, or for economic values as opposed to other values. To the contrary, these methodologies take as central and contingent the question whether market or non-market mechanisms are appropriate in any particular instance. Finally, these methodologies do not deny a role for, or the reality of, international law. Instead, they direct us towards the very phenomena that are already at the center of the international legal agenda.25 Of course, demonstrating that arguments against the use of L&E analysis lack force is not, in itself, any reason to believe that L&E analysis will be useful to international lawyers. It is to this task we now turn. II. The Structural Analogy: The Supra-Market of International Relations and Gains From Trade Before engaging in the economic analysis of international legal problems, it is useful to explore whether international legal problems have some characteristics in common with those already addressed by law and economics. While it is not necessary for our purposes that the analogy be perfect, relevant similarities facilitate the transfer of tools from the domestic sphere to the international. Hence, we outline here the argument that transactions in international relations are analogous to transactions in private markets. In subsequent sections, we outline arguments for more specific analogies between particular international legal problems and particular domestic 24 Many lawyers may also object to another attribute of law and economics’ positivism: its insistence on the distinction between things as they are and things as they ought to be, between “is” and “ought.” While there is a general epistemological critique of this form of positivism, see, e.g., TRIGG, supra note 20 (explaining widespread rejection of positivism in many social science and philosophical traditions), lawyers have advanced arguments grounded in the claim that law necessarily entails a normative dimension. As these debates have been thoroughly explored elsewhere, we do not revisit them here. See, e.g., Avery Weiner Katz, Positivism and the Separation of Law and Economics, 94 MICH. L. REV. 2229 (1996); Anthony J. Sebok, Misunderstanding Positivism, 93 MICH. L. REV. 2054 (1995); Herbert Hovenkamp, Positivism in Law and Economics, 78 CAL. L. REV. 815 (1990). 25 We do not intend these arguments as a defense of economic theory and methodology generally, including the utility of abstract modelling, the assumption of rationality and the use of the efficiency criterion. For more on these issues, see generally Milton Friedman, The Methodology of Positive Economics, in ESSAYS IN POSITIVE ECONOMICS 3 (1953). 9
legal problems. 26 At its core, the relevant similarity is that international society, like any society, is a place where individual actors or groups of actors encounter one another and sometimes have occasion to cooperate, to engage in what may broadly be termed"transactions. 27 This analogy has been developed by, interalia, Abbott, Keohane, Krasner and Waltz. In this literature, markets are understood to arise out of the activities of individual persons or firms. These individuals seek to further their self-defined interests through the most efficacious means available. while each individual acts for himself, from the action of like units emerges a structure that affects and constrains all of them. Once formed a market becomes a force in itself and a force that the consitutive units acting singly or in small numbers cannot control. 28 So too for the international system. Like economic markets, the international system is formed by the interactions of self-regarding units --largely but not exclusively, states. These utilitarian states interact to "overcome the deficiencies that make it impossible to consummate mutually beneficial agreements. 29 Actors in each system are willing-to some extent--to relinquish autonomy in order to obtain certain benefits 30 Both the international and the domestic systems, then, are individualist in origin, spontaneously generated and unintended products of elf-interested behavior 31 The assets traded in this international"market are not goods or services per se, but assets peculiar to states: components of power. In a legal context, power is jurisdiction, including jurisdiction to prescribe, jurisdiction to adjudicate and jurisdiction to enforce. In international ociety, the equivalent of the market is simply the place where states interact to cooperate on articular issues--to trade in power--in order to maximize their baskets of preferences States enter the market of international relations in order to obtain gains from exchange For present purposes, we can understand the structure of this market as follows: Beginning from the state of nature. the first level of "trade" is that which establishes constitutional rules rules about 26 In drawing these analogies, we do not intend to participate in larger international legal debates over appropriateness of the"domestic analogy. See, e.g., HIDEMI SUGANAMI, THE DOMESTIC ANALOGY AND WORLD ORDER PROPOSALS (1989); Burley, supra note 2, at 239 n 13 27The most fundamental unit of analysis in economic organization theory is the transaction-- the transfer of goods or services from one individual to another Paul mILGROM john ROBERTS, ECONOMICS, ORGANIZATION AND MANAGEMENT 21(1992) 28 KENNETH N. WALTZ, THEORY OF INTERNATIONAL POLITICS XXX(1979) 29 ROBERT O. KEOHANE, AFTER HEGEMONY: COOPERATION AND DISCORD IN THE WORLD POLITICAL ECONOMY 83(1984) 30 In fact, the contractarian model is more easily applicable to the international system than to the domestic, as the international system has more viable exit options 31 KEOHANE, supra note 30, at 83
legal problems.26 At its core, the relevant similarity is that international society, like any society, is a place where individual actors or groups of actors encounter one another and sometimes have occasion to cooperate, to engage in what may broadly be termed “transactions.” 27 This analogy has been developed by, inter alia, Abbott, Keohane, Krasner and Waltz. In this literature, markets are understood to arise out of the activities of individual persons or firms. These individuals seek to further their self-defined interests through the most efficacious means available. While each individual acts for himself, “[f]rom the action of like units emerges a structure that affects and constrains all of them. Once formed, a market becomes a force in itself, and a force that the consitutive units acting singly or in small numbers cannot control.”28 So too for the international system. Like economic markets, the international system is formed by the interactions of self-regarding units -- largely, but not exclusively, states. These utilitarian states interact to “overcome the deficiencies that make it impossible to consummate . . . mutually beneficial agreements.”29 Actors in each system are willing--to some extent--to relinquish autonomy in order to obtain certain benefits.30 Both the international and the domestic systems, then, are individualist in origin, spontaneously generated and unintended products of self-interested behavior.31 The assets traded in this international “market” are not goods or services per se, but assets peculiar to states: components of power. In a legal context, power is jurisdiction, including jurisdiction to prescribe, jurisdiction to adjudicate and jurisdiction to enforce. In international society, the equivalent of the market is simply the place where states interact to cooperate on particular issues--to trade in power--in order to maximize their baskets of preferences. States enter the market of international relations in order to obtain gains from exchange. For present purposes, we can understand the structure of this market as follows: Beginning from the state of nature, the first level of "trade" is that which establishes constitutional rules: rules about 26 In drawing these analogies, we do not intend to participate in larger international legal debates over appropriateness of the “domestic analogy.” See, e.g., HIDEMI SUGANAMI, THE DOMESTIC ANALOGY AND WORLD ORDER PROPOSALS (1989); Burley, supra note 2, at 239 n. 13. 27 "The most fundamental unit of analysis in economic organization theory is the transaction-- the transfer of goods or services from one individual to another." PAUL MILGROM & JOHN ROBERTS, ECONOMICS, ORGANIZATION AND MANAGEMENT 21 (1992) 28 KENNETH N. WALTZ, THEORY OF INTERNATIONAL POLITICS xxx (1979). 29 ROBERT O. KEOHANE, AFTER HEGEMONY: COOPERATION AND DISCORD IN THE WORLD POLITICAL ECONOMY 83 (1984). 30 In fact, the contractarian model is more easily applicable to the international system than to the domestic, as the international system has more viable exit options. 31 KEOHANE, supra note 30, at 83. 10