assumption of rationality may be even less acceptable as applied to states-as suggested by the literature on social choice and public choice. Arrow and Buchanan suggest that organizations have no rationality of their own, but intermediate, imperfectly, for individuals. 56 At present, we are more interested in identifying this problem than in resolving it; for present purposes, we believe tha w] hether it makes pragmatic theoretical sense to impute interests, expectations, and the other paraphernalia of coherent intelligence to an institution is neither more nor less problematic, a priori, than whether it makes sense to impute them to an individual. The pragmatic answer appears to be that the coherence of institutions varies but is sometimes ubstantial enough to justify viewing a collectivity as acting coherently. 57 The Problem of endogenous preferences A final problem to be acknowledged here is that the structural analogy takes state developed to maximize these preferences. But preferences depend on context, and in particular, on existing political, legal and institutional arrangements. This suggests a logical difficulty with attempts to explain legal rules or institutions as a simple aggregation of preferences; when preferences are a function of legal rules, these rules cannot, without circularity, be justified by reference to the preferences. It also suggests a dynamic element that is missing from the structural analogy. Since international institutions modify state preferences, the very preferences that might lead, in a particular context, to institutionalization may be changed by the presence of that Institution We do not seek to minimize these theoretical difficulties. However, while these problems worthy of sustained analysis, and receive further attention below, the fatally und the effort to apply economic analysis to international legal phenomena. Thus, we turn to an economic analysis of three particular international legal issues: jurisdiction to prescribe, the rules of treaty, and international organizations Jurisdiction to Prescribe and Property Rights The discussion above implicitly analogizes(domestic) property to (international law and economics methodologies that have proven useful in the analysis of property law can be ea prescriptive) jurisdiction. In this section, we pursue this analogy; in particular we explore whether to questions of international Economists often refer to property rights as the abil ity to enjoy a piece of property, or the individual's ability to directly consume the services of the asset, or to consume it indirectly See, e.g., KENNETH ARROW, SOCIAL CHOICE AND INDIVIDUAL VALUES(1951); JAMES M BUCHANAN, EXPLORATIONS INTO CONSTITUTIONAL ECONOMICS(1989) 57 James G. March Johan P Olsen, The New Institutionalism: Organizational Factors in Political Life, 78 AM. POLIT. SCI. REV. 734, 739(1984)
assumption of rationality may be even less acceptable as applied to states -- as suggested by the literature on social choice and public choice. Arrow and Buchanan suggest that organizations have no rationality of their own, but intermediate, imperfectly, for individuals.56 At present, we are more interested in identifying this problem than in resolving it; for present purposes, we believe that [w]hether it makes pragmatic theoretical sense to impute interests, expectations, and the other paraphernalia of coherent intelligence to an institution is neither more nor less problematic, a priori, than whether it makes sense to impute them to an individual. The pragmatic answer appears to be that the coherence of institutions varies but is sometimes substantial enough to justify viewing a collectivity as acting coherently.57 3. The Problem of Endogenous Preferences A final problem to be acknowledged here is that the structural analogy takes state preferences as exogenous. That is, state preferences are simply “given,” and then strategies are developed to maximize these preferences. But preferences depend on context, and in particular, on existing political, legal and institutional arrangements. This suggests a logical difficulty with attempts to explain legal rules or institutions as a simple aggregation of preferences; when preferences are a function of legal rules, these rules cannot, without circularity, be justified by reference to the preferences. It also suggests a dynamic element that is missing from the structural analogy. Since international institutions modify state preferences, the very preferences that might lead, in a particular context, to institutionalization may be changed by the presence of that institution. We do not seek to minimize these theoretical difficulties. However, while these problems are worthy of sustained analysis, and receive further attention below, they do not fatally undermine the effort to apply economic analysis to international legal phenomena. Thus, we turn to an economic analysis of three particular international legal issues: jurisdiction to prescribe, the rules of treaty, and international organizations. I. Jurisdiction to Prescribe and Property Rights The discussion above implicitly analogizes (domestic) property to (international prescriptive) jurisdiction. In this section, we pursue this analogy; in particular we explore whether law and economics methodologies that have proven useful in the analysis of property law can be usefully applied to questions of international jurisdiction. Economists often refer to property rights as the “ability to enjoy a piece of property,” or “the individual’s ability to directly consume the services of the asset, or to consume it indirectly 56 See, e.g., KENNETH ARROW, SOCIAL CHOICE AND INDIVIDUAL VALUES (1951); JAMES M. BUCHANAN, EXPLORATIONS INTO CONSTITUTIONAL ECONOMICS (1989). 57 James G. March & Johan P. Olsen, The New Institutionalism: Organizational Factors in Political Life, 78 AM. POLIT. SCI. REV. 734, 739 (1984). 16
through exchange in contrast to the bundle of rights "approach more often used by lawyers. 58 From an economic perspective, the legal recognition of property interests is viewed as a means for the protection of the economic value of property. More importantly, the economic conception of property is broader than the legal conception, encompassing those interests in property that arise by non-legal custom or comity. 59 While neo-classical economics, based on price theory, has often limited itself to the study of market transactions, the initial establishment of property rights is a meta-market phenomenon, and is in a general sense, pre-transactional 60 In this sense, property rights form a substructure on which further transactions may be built; transactions then are exchanges of property rights. Recall our analogy to prescriptive jurisdiction: in the world of prescriptive jurisdiction, custom, treaty or other international legislation would form the substructure on which further transactions in prescriptive jurisdiction could be built. These further transactions might themselves also be effected through treaties or other devices Transaction Cost economics Prior to Coase, economics presumed property rights, but did not analyze them. Coase revolutionized our thinking about assignments of property rights. 6I While Coase showed that under zero transaction costs, the allocation of property rights does not affect efficiency, under positive transaction costs-the world as it is-it is appropriate to consider the design of property rights, and rules of prescriptive jurisdiction. Often, law and economics scholars call simply for rules rele t ty rights, as often, international legal scholars call for clarification of international legal rules regulating prescriptive jurisdiction. But these calls are often based either on a misreading of the Coase Theorem, or on an assumption that clarity invariably minimizes transaction costs 58 For more on the"bundle of rights approach to property, see, e.g., J.E. Penner, The Bundle of Rights" Picture of Property, 43 U.C. L A. L. REv. 711(1996): Thomas C Grey, The Disintegration of Property, 22 NOMOS 69(1980). See also BARZEL, supra note 19, at 90. The classic articulation of this conception of property remains A M Honore, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107(AG. Guest ed, 1961)(identifying standard bundle of rights that constitutes ownership of property) 59 See roBert C. ELlICKsoN, ORDER WITHOUT LAW(1991). a broader point is that either of these concepts can be made to include not only traditional property rights, but also tort, contract and regulatory assignments of rights. In fact, the better way to describe the domestic analog of prescriptive jurisdiction is in terms of"entitlements, "in the sense used by Calabresi and Melamed Guido Calabresi and A. Douglas Melamed, Property rules, Liability Rules, and inalienability One view of the cathedral, 85 HARV. L. REV. 1089, 1090(1972) 60 Demsetz, supra note 36. On the other hand beginning from a state of nature, or in ircumstances where property rights have not been developed, they may themselves be formulated as part of an exchange: " you recognize my exclusive rights to harvest the field that I cultivate, and I will not take game from the traps that you set "This type of exchange may be generalized to form part of a"social contract, and may result in property law. See barzel, supra note 19, at 85- 61 For more on the Coase Theorem, see sources cited in note 41, supra
through exchange,” in contrast to the “bundle of rights” approach more often used by lawyers.58 From an economic perspective, the legal recognition of property interests is viewed as a means for the protection of the economic value of property. More importantly, the economic conception of property is broader than the legal conception, encompassing those interests in property that arise by non-legal custom or comity.59 While neo-classical economics, based on price theory, has often limited itself to the study of market transactions, the initial establishment of property rights is a meta-market phenomenon, and is in a general sense, pre-transactional.60 In this sense, property rights form a substructure on which further transactions may be built; transactions then are exchanges of property rights. Recall our analogy to prescriptive jurisdiction: in the world of prescriptive jurisdiction, custom, treaty or other international legislation would form the substructure on which further transactions in prescriptive jurisdiction could be built. These further transactions might themselves also be effected through treaties or other devices. A. Transaction Cost Economics Prior to Coase, economics presumed property rights, but did not analyze them. Coase revolutionized our thinking about assignments of property rights.61 While Coase showed that under zero transaction costs, the allocation of property rights does not affect efficiency, under positive transaction costs -- the world as it is -- it is appropriate to consider the design of property rights, and rules of prescriptive jurisdiction. Often, law and economics scholars call simply for clear property rights, as often, international legal scholars call for clarification of international legal rules regulating prescriptive jurisdiction. But these calls are often based either on a misreading of the Coase Theorem, or on an assumption that clarity invariably minimizes transaction costs. 58 For more on the “bundle of rights” approach to property, see, e.g., J.E. Penner, The “Bundle of Rights” Picture of Property, 43 U.C.L.A. L. REV. 711 (1996); Thomas C. Grey, The Disintegration of Property, 22 NOMOS 69 (1980). See also BARZEL, supra note 19, at 90. The classic articulation of this conception of property remains A.M Honore, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107 (A.G. Guest ed., 1961) (identifying standard bundle of rights that constitutes ownership of property). 59 See ROBERT C. ELLICKSON, ORDER WITHOUT LAW (1991). A broader point is that either of these concepts can be made to include not only traditional property rights, but also tort, contract and regulatory assignments of rights. In fact, the better way to describe the domestic analog of prescriptive jurisdiction is in terms of "entitlements," in the sense used by Calabresi and Melamed. Guido Calabresi and A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV. 1089, 1090 (1972). 60 Demsetz, supra note 36. On the other hand, beginning from a state of nature, or in circumstances where property rights have not been developed, they may themselves be formulated as part of an exchange: "you recognize my exclusive rights to harvest the field that I cultivate, and I will not take game from the traps that you set." This type of exchange may be generalized to form part of a "social contract," and may result in property law. See Barzel, supra note 19, at 85- 104. 61 For more on the Coase Theorem, see sources cited in note 41, supra. 17