¹ See especially Keohane, Robert O., “The Theory of Hegemonic Stability and Changes in International Economic Regimes, 1967–1977,” in Holsti, Ole R., Siverson, Randolph, and George, Alexander, eds., Changes in the International System (Boulder: Westview, 1980)Google Scholar; and Cahn, Linda, “National Power and International Regimes: The United States and International Commodity Markets,” Ph.D. diss., Stanford University, 1980Google Scholar.

² Current research on the nineteenth century is beginning to question the assumption that Britain was hegemonic in a meaningful sense. See McKeown, Timothy J., “Hegemony Theory and Trade in the Nineteenth Century,” paper presented to the International Studies Association convention, Philadelphia, 18–21 03 1981Google Scholar; and Stein, Arthur A., “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 09 1981Google Scholar.

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 Olson, Mancur Jr, The Logic of Collective Action: Political Goods and the Theory of Groups (Cambridge: Harvard University Press, 1965)Google Scholar.

⁴ I am indebted to Albert Fishlow for clarifying this point for me.

⁵ George, Alexander L., “Case Studies and Theory Development: The Method of Structured, Focused Comparison,” in Lauren, Paul, ed., Diplomacy: New Approaches in History, Theory, and Policy (New York: Free Press, 1979)Google Scholar.

⁶ Lakatos, Imre, “Falsification and the Methodology of Scientific Research Programmes,” in Lakatos, and Musgrave, Alan, eds., Criticism and the Growth of Scientific Knowledge (Cambridge: Cambridge University Press, 1970)Google Scholar.

⁷ Stimulating discussions of microeconomic theory can be found in Shubik, Martin, “A Curmudgeon's Guide to Microeconomics,” Journal of Economic Literature 8 (1970): 405–434Google Scholar; and Latsis, Spiro J., “A Research Programme in Economics,” in Latsis, , ed., Method and Appraisal in Economics (Cambridge: Cambridge University Press, 1976)Google Scholar.

⁸ I 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 History 18 (04 1981)Google Scholar.

⁹ Davis, Lance E. 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)Google Scholar.

¹⁰ Two of the classic works are March, James and Simon, Herbert, Organizations (New York: Wiley, 1958)Google Scholar; and Cyert, Richard and March, James, The Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, 1963)Google Scholar.

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 Harsanyi, John, “Measurement of Social Power, Opportunity Costs and the Theory of Two-Person Bargaining Games,” Behavioral Science 7, 1 (1962): 67–80Google Scholar. See also Hirschman, Albert O., National Power and the Structure of Foreign Trade (1945; Berkeley: University of California Press, 1980), especially pp. 45–48Google Scholar.

¹³ Lowry, S. Todd, “Bargain and Contract Theory in Law and Economics,” in Samuels, Warren J., ed., The Economy as a System of Power (New Brunswick, N.J.: Transaction Books, 1979), p. 276Google Scholar.

¹⁴ Fellner, William, Competition among the Few (New York: Knopf, 1949)Google Scholar.

¹⁵ Puchala, Donald J., “Domestic Politics and Regional Harmonization in the European Communities,” World Politics 27,4 (06 1975), p. 509Google Scholar.

¹⁶ There are exceptions to this generalization, such as Tiebout's “voting with the feet” models 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 authoritative decision-making processes. See Mueller, Dennis C., Public Choice (Cambridge: Cambridge University Press, 1980)Google Scholar. For a brilliantly innovative work on “exit” versus “voice” processes, see Hirschman, Albert O., Exit, Voice, and Loyalty (Cambridge: Harvard University Press, 1970)Google Scholar.

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 Waltz, Kenneth N., Theory of International Politics (Reading, Mass.: Addison-Wesley, 1979)Google Scholar.

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. 16Google Scholar.

²⁰ Olson, The Logic of Collection Action; Russett, Bruce M. and Sullivan, John D., “Collective Goods and International Organization,” with a comment by Olson, Mancur Jr, International Organization 25, 4 (Autumn 1971).Google Scholar; Ruggie, John Gerard, “Collective Goods and Future International Collaboration,” American Political Science Review 66, 3 (09 1972)Google Scholar; Snidal, Duncan, “Public Goods, Property Rights, and Political Organization,” International Studies Quarterly 23, 4 (12 1979), p. 544Google Scholar.

²¹ Keohane, “The Theory of Hegemonic Stability”; Kindleberger, Charles P., The World in Depression, 1929–1939 (Berkeley: University of California Press, 1974)Google Scholar; Olson, Mancur and Zeckhauser, Richard, “An Economic Theory of Alliances,” Review of Economics and Statistics 48, 3 (08 1966).Google Scholar, 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 Conybeare, John A. C., “International Organizations and the Theory of Property Rights,” International Organization 34, 3 (Summer 1980), especially pp. 329–32Google Scholar.

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 behavior intelligible within a rational-choice mode of analysis that emphasizes the role of incentives and constraints. For useful distinctions on functionalism, see Nagel, Ernest, The Structure of Scientific Explanation (New York: Harcourt, Brace, 1961)Google Scholar, especially “Functionalism and Social Science,” pp. 520–35. I am grateful to Robert Packenham for this reference and discussions of this point.

²³ Vinod Aggarwal has developed the concept of “nesting” in his work on international regimes in textiles since World War II. I am indebted to him for this idea, which has been elaborated in his “Hanging by a Thread: International Regime Change in the Textile/Apparel System, 1950–1979,” Ph.D. diss., Stanford University, 1981Google Scholar.

²⁴ Of particular value for understanding market failure is Arrow, Kenneth J., Essays in the Theory of Risk-Bearing (New York: North Holland/American Elsevier, 1974)Google Scholar.

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 highquality 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 Ehrenberg, Richard, Capital and Finance in the Age of the Renaissance: A Study of the Fuggers and Their Connections, translated from the German by Lucas, H. M. (New York: Harcourt, Brace, no date), especially chap. 3 (pp. 307–333)Google Scholar.

²⁶ Coase, Ronald, “The Problem of Social Cost,” Journal of Law and Economics 3 (10 1960)Google Scholar. For a discussion, see Buchanan, James and Tullock, Gordon, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962), p. 186Google Scholar.

²⁷ If we were to drop the assumption that actors are strictly self-interested utility-maximizers, regimes could be important in another way: they would help to develop norms that are internalized by actors as part of their own utility functions. This is important in real-world politicaleconomic systems, as works by Schumpeter, Polanyi, and Hirsch on the moral underpinnings of a market system indicate. It is likely to be important in many international systems as well. But it is outside the scope of the analytical approach taken in this article-which is designed to illuminate some issues, but not to provide a comprehensive account of international regime change. See Schumpeter, Joseph, Capitalism, Socialism, and Democracy (New York: Harper & Row, 1942)Google Scholar, especially Part II, ”Can Capitalism Survive?”; Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Time (1944; Boston: Beacon Press, 1957)Google Scholar; and Hirsch, Fred, Social Limits to Growth (Cambridge: Harvard University Press, 1976)Google Scholar.

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.

²⁹ For a discussion of “the varieties of international law,” see Henkin, Louis, How Nations Behave: Law and Foreign Policy, 2d ed. (New York: Columbia University Press for the Council on Foreign Relations, 1979), pp. 13–22Google Scholar.

³⁰ Davis, and North, , Institutional Change and American Economic Growth, especially pp. 51–57Google Scholar.

³¹ The concept of issue density bears some relationship to Simon's, Herbert notion of “decomposability, in The Sciences of the Artificial (Cambridge: MIT Press, 1969)Google Scholar. 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, Keohane, Robert O. and Nye, Joseph S., Power and Interdependence: World Politics in Transition (Boston: Little, Brown, 1977), chap. 4Google Scholar.

³² On questions of linkage, see Stein, Arthur A., “The Politics of Linkage,” World Politics 33, 1 (1980): 62–81Google Scholar; Oye, Kenneth, “The Domain of Choice,” in Oye, et al. , Eagle Entangled: U.S. Foreign Policy in a Complex World (New York: Longmans, 1979), pp. 3–33Google Scholar; and Tollison, Robert D. and Willett, Thomas D., “An Economic Theory of Mutually Advantageous Issue Linkage in International Negotiations,” International Organization 33, 4 (Autumn 1979)Google Scholar.

³³ GATT negotiations and deliberations on the international monetary system have been characterized by extensive bargaining over side-payments and complex politics of issuelinkage. For a discussion see Hutton, Nicholas, “The Salience of Linkage in International Economic Negotiations,” Journal of Common Market Studies 13, 1–2 (1975): 136–60Google Scholar.

³⁴ Haas, Ernst B., The Uniting of Europe (Stanford: Stanford University Press, 1958)Google Scholar.

³⁵ Samuelson, Paul A., “The Monopolistic Competition Revolution,” in Kuenne, R. E., ed., Monopolistic Competition Theory (New York: Wiley, 1967), p. 117Google Scholar.

³⁶ Increases in issue density could make it more difficult to supply regimes; the costs of providing 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.

³⁷ Stephen D. Krasner, article in this volume, p. 186.

³⁸ Robert Jervis, article in this volume, p. 364.

³⁹ The classic discussion is in Schelling, Thomas C., The Strategy of Conflict (1960; Cambridge: Harvard University Press, 1980), chap. 4Google Scholar, “Toward a Theory of Interdependent Decision.” See also Schelling, , Micromotives and Macrobehavior (New York: Norton, 1978)Google Scholar.

⁴⁰ For an interesting discussion of regimes in these terms, see the paper in this volume by Oran R. Young. On conventions, see Lewis, David K., Convention: A Philosophical Study (Cambridge: Cambridge University Press, 1969)Google Scholar.

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 Williamson, Oliver E., Markets and Hierarchies: Analysis and Anti-Trust Implications (New York: Free Press, 1975)Google Scholar.

⁴⁴ Ackerlof, George A., “The Market for 'Lemons': Qualitative Uncertainty and the Market Mechanism,” Quarterly Journal of Economics 84, 3 (08 1970)Google Scholar.

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 Bobrow, Davis B. and Kudrle, Robert T., “Energy R&D: In Tepid Pursuit of Collective Goods,” International Organization 33, 2 (Spring 1979): 149–76Google Scholar.

⁴⁸ Williamson, Oliver E., “A Dynamic Theory of Interfirm Behavior,” Quarterly Journal of Economics 79 (1965), p. 584Google Scholar.

⁴⁹ Strange, Susan, “The Management of Surplus Capacity: or How Does Theory Stand Up to Protectionism 1970s Style?”, International Organization 33, 3 (Summer 1979): 303–334Google Scholar.

⁵⁰ Hirsch, Fred, “The Bagehot Problem,” The Manchester School 45, 3 (1977): 241–57Google Scholar.

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 highquality information in making agreements does not force governments to become more open, but it gives advantages to those that do.

⁵² Williamson, , “A Dynamic Theory of Interfirm Behavior,” p. 592Google Scholar, original italics.

⁵³ Power and Interdependence, especially pp. 54–58 and 146–53. Cahn, LindaGoogle Scholar also found lags, particularly in the wheat regime; see “National Power and International Regimes.”

⁵⁴ Power and Interdependence, p. 55.

⁵⁵ On the GATT, see Patterson, Gardner, Discrimination in International Trade: The Policy Issues (Princeton: Princeton University Press, 1966)Google Scholar; on the international monetary regime, see Russell, Robert W., “Transgovernmental Interaction in the International Monetary System, 1960–1972,” International Organization 21, 4 (Autumn 1973)Google Scholar and Hirsch, Fred, Money International, rev. ed. (Harmondsworth, England: Pelican Books, 1969), especially chap. 11Google Scholar, “Central Bankers International.”

⁵⁶ Keohane, Robert O. and Nye, Joseph S., “Transgovernmental Relations and International Organizations,” World Politics 21, 1 (10 1974): 39–62Google Scholar.

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. Problems 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. 305Google Scholar.

⁵⁹ Kindleberger, Charles P., “Systems of International Economic Organization,” in Calleo, David P., ed., Money and the Coming World Order (New York: New York University Press for the Lehman Institute, 1978)Google Scholar; McKinnon, Ronald, Money in International Exchange: The Convertible Currency System (New York: Oxford University Press, 1979)Google Scholar.

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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.

⁶² Gruhn, Isebill V., “The Lome Convention: Inching toward Interdependence,” International Organization 30, 2 (Spring 1976), pp. 255–56Google Scholar.

⁶³ Keohane, Robert O., “The International Energy Agency: State Influence and Transgovemmental Politics,” International Organization 32, 4 (Autumn 1978): 929–52Google Scholar.

⁶⁴ OECD Observer, no. 74 (03–04 1975), pp. 9–13Google Scholar.

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.