Contracting around International Uncertainty

In: American political science review, Volume 99, Issue 4, p. 549-565

Abstract

International cooperation is plagued by uncertainty. Although states negotiate the best agreements possible using available information, unpredictable things happen after agreements are signed that are beyond states' control. States may not even commit themselves to an agreement if they anticipate that circumstances will alter their expected benefits. Duration provisions can insure states in this context. Specifically, the use of finite duration depends positively on the degree of uncertainty and states' relative risk aversion and negatively on the cost. These formally derived hypotheses strongly survive a test with data on a random sample of agreements across all four of the major issue areas in international relations. Not only do the results, highlighting evidence on multiple kinds of flexibility provisions, strongly suggest that the design of international agreements is systematic and sophisticated; but also they call attention to common ground among various subfields of political science and law.