reading 28 nov - autonomy of international organizations

Question 1

Delegation under anarchy: states, international
organizations, and principal-agent theory

intro

Answer 1

DARREN G. HAWK IN S, D AV ID A. LAKE, DANIEL L. NIELSON,
AND MICHAEL J. TIERNEY

“for som observers, IOs appear to be institutional Frankensteins terrorizing the global countryside. Created by their masters, they have slipped their restraints and now run amok”
for others IOs seem to obey their masters all too well (western powers use them to impose their will on the world)
for others IOs once served interessts of their creators but now hijacked by other actors to pursue undesirable ends (IOs as double agents)

IOs are better understood as bureaucracies that can be more or less controlled by their political masters

focus on IOs as actors in their own right, with their own interests = more than rules

focus on PA theory = principle agent theory

argument = about: interaction between the benefits to gov from delegating tasks to an IO, and the complications introduced by preference heterogeneity and power differentials among states

• likelihood delegation increases when benefit increases
• probability decreases when preferences more heterogeneous or voting rules fail to accord with the distribution of power among states

mechanisms of control by principles to control their agents

Question 2

defining delegation

Answer 2

= conditional grant of authority from a principal to an agent that empowers the latter to act on behalf of the former = limited in time or scope + revocable by the principal

• principals and agents are mutually constitutive (you can’t be a principal without an agent and vice versa)
• relations governed by a contract (self-enforcing agreements that define the terms of the relationship between two parties)

e.g. US Congress principal in that it can authorize the President to decide policy on its behalf in a specific issue area + can later revoke that authority
!both are required

PA theory = focus on substantive acts of principals in granting conditional authority and designing institutions to control possible opportunism by agents

agents don’t always do what principals want

• agency slack = independent action by an agent that is undesired by the principle
  in the form of shirking (agent minimizes the effort it exerts on its principals behalf) or slippage (agent shifts policy away from the principals preferred outcome
• autonomy = range of potential independent action available to an agent after the principal has established mechanisms of control
• discretion = grant of authority that specifies the principal’s goals but not the specific actions the agent must take to accomplish those objectives (alternative to rule-based delegation)
  often gives agents larger autonomy
  discretion is intentionally designed into a contract, autonomy is an unavoidable by-product of imperfect control over agents
• agency losses = when agents engage in undesired independent action

Question 3

3 forms of international cooperation

Answer 3

1. unilateralism = no adjustment of policy and IOs not the implementing agency for any policy (e.g. US war on Afghanistan, Smoot-Hawley Tariff 1930)
2. international cooperation = parties adjust policies + implementation through strictly national laws or regulations
   states themselves implement te policy rather than delegate authority to a third party
   e.g. lowering tariffs under GATT
3. delegation to IOs: principals agree on a common policy and then delegate the implementation of that policy to an IO

Question 4

delegation and recontracting

Answer 4

e.g. increase monitoring, new administrative checks, enhanced screening and selection of agents

but also:

de-delegating = choosing to withdraw authority from the IO

Question 5

the benefits of delegation

Answer 5

• “lock-in” = creating policy bias
• enhance credibility
• dispute resolution
• facilitating collective decisionmaking
• managing policy externalities
• specialization

!mitigating factors: preference heterogeneity + power balances

Question 6

the benefits of delegation
- specialization

Answer 6

delegation = divison of labor: dont do it yourself but delegate to a specialized agent with expertise, time, political ability and/or resources to perform a task

greater gains from specialization -> greater incentives to delegate (+ greater agency losses principal is willing to tolerate)

greater gains from specialization when: taks to be performed is frequent, repetitive, requires expertise
- e.g. ICC, IMF, UNSC expertise

“Delegation to an IO is most likely when the costs of establishing the specialized agent are more than the benefits to any single state but less than the benefits to a collection of states”
- e.g. peacekeeping: no single stat benefits enough from peacekeeping to bear the costs itself, but benefits are larger than any state’s costs if burdens are distributed

specialization -> provide services that states are unable/unwilling to provide unilaterally

Question 7

benefits of delegation
- policy externalities

Answer 7

greater externalities -> more likely to engage in mutually coordinated action

policy externalities arise under 2 conditions:

1. coordination dilemma = states seek to avoid mutually distasteful outcomes or enhance the certainty of their choosing mutually desired outcomes

delegating authority to a coordinating agent can help resolve these dilemmas: can evaluate alternatives
- states are likely to grant significant discretion to their agents

states can also gain by delegating to agents to monitor their behavior, provide info on alternatives etc. = also significant discretion

= e.g. International Postal Union

2. collaboration dilemma = equilibrium outcome is suboptimal -> states must bind to act against their natural tendencies (prisoner’s dilemma)

e.g. free rider problem with public goods (everyone would benefit from clean environment, but large incentive to defect and free ride)

-> states may benefit by delegating to an IO that they empower and finance to provide the public good

e.g. WHO

-> states may create agents to collect and reveal info on the efforts when states contribute individually to public goods

e.g. Council of Europe: monitors human rights practices, International Atomic Energy Agency, OECD

= collaboration agents = less discretion

Question 8

benefits of delegation
- collective decision-making

Answer 8

States may also delegate to IOs when they possess socially intransitive preferences or other problems of collective decision-making. That is, when states as a group are unlikely to reach a stable agreement on policy (i.e. will cycle through alternatives), they can delegate power to an agenda-setting agent to induce an equilibrium when one might not otherwise exist

presumably the IO and its
leadership stand someplace near the median of the managing coalition of member states

policy struggle over agenda control between states closer to the median of the group and powerful states with more extreme preferences who prefer to act unilaterally (e.g. UNSC disagreement over disarmament of Iraq before the 2003 War in the Persian Gulf)

The closer the membership’s preferences and the politically weaker the preference outliers in socially intransitive settings, the more likely states will be to delegate to an agenda-setting IO or restructure an IO contract to provide agenda-setting authority

Question 9

benefits of delegation
- dispute resolution

Answer 9

use of third-party agents to resolve disputes = arbitrating agents

conflicts over the terms of the contract : often are incomplete

agreeing in advance to refer disputes to an arbitrating agent -> principals select impartial agents with high degree of autonomy
- risk neutral course of action: principal likely to win just as often as it loses

sometimes create trustee: to whom authority is permanently transferred

!agents don’t have autonomy to decide disputes in any way they want: principals have agreements on procedures, types of evidence permitted, forms of argument to be followed etc.

Question 10

benefits of delegation
- credibility

Answer 10

aim to enhance the credibility of policy commitments

e.g. time-inconsistency problem: actions in an actor’s long term interest may not be in its interest at any particular moment

principals can mitigate these problems by delegating policy to enforcing agents

to succeed in establishing policy credibility, it must also be costly for principals to revoke authority or to overturn specific decisions of agents
- e.g. investors see it as signal of impending policy change and react negatively

e.g. European Central Bank (reflects Germany’s comparatively conservative financial preferences)

Question 11

benefits of delegation
- lock in (creation policy bias)

Answer 11

most political institutions arise out of a politics of structural choice in which winners use their temporary hold on public authority to design new structures and impose them on the polity as a whole

• e.g. consociational institutions lock-in the balance of ethnic power that exists in a particular moment

e.g. UNSC lock-ed in international balance of power as it existed in 1945

= policy-biased gents
have careful mandates that are diff oundo or by structuring voting rules in ways that ensure the continued dominance of those who hold power at the moment of the rule drafting

costs of adverse agent decisions can be quite high (e.g. European Court of Human Rights)

Question 12

preference heterogeneity

Answer 12

not all states share the same goals and policy preferences

-> delegation requires resolving policy conflicts before they can decide to grant conditional authority to an agent

more heterogeneity -> less likely to delegate to an IO

!less similar preferences -> less likely to revise an existing delegation relationship: revising will likely lead to poicy change, greater heterogeneity means more likely that one or more states prefer the status quo

Question 13

institutional rules, power and delegation

Answer 13

states also care about how
institutional rules at the international level aggregate national preferences into policy and control over possible IO agents

Generally, the greater the number of states required to approve an action, the greater the autonomy of the agent

When institutional rules fail to reflect accurately the distribution of power, powerful states will more readily choose to act outside the institution
- e.g. Bush’ coalition of the willing 2003 Iraq War

Thus, in choosing to delegate to an IO, the existing institutional rules
are important

as the distribution of power and institutional rules diverge, the less likely states will be to delegate to that IO.

Question 14

trade-off with delegation

Answer 14

= beween gains from delegation and agency losses that arise from opportunistic behavior of the agent

structure of the agency relationship (form of delegation) is designed to manage this tradeoff

Question 15

structures of delegation
- agency problems

Answer 15

assumption PA theory = agents pursue their own interests, subject to the constraints imposed upon them by their principals = they are opportunistic

1. for agency slack to arise there must be some environmental uncertainty that renders it diff for the principal to assess the agent’s effort (otherwise the the principal can simply observe the outcome and infer the agent’s actions in bringing about that result)
   with uncertainty the principal can’t discern if the outcome is bc agent slack or bc some exogenous “shock”
2. agent specialization exacerbates the twin problems for the principal of hidden action and hidden information: if a principal must learn everything that an agent does and knows, gains from specialization diminish

greater specialization -> greater opportunity for agency slack

Question 16

structures of delegation
- the nature of the agent

Answer 16

principal can create a new agent (costly but close to preferences and purposes of the principal) or choose among a pool of existing entities (no start-up costs but probably not an ideal agent)

typical assumption = agent is created by principal therefore no independent influence
BUT: finite pool of possible agents + positive costs creating new agents -> “exogenous” traits of agents are likely to matter

greater cost creating new agent/IO + larger divergence between ideal preferences and design of an agent and the traits of existing agents -> more difficult to control the agent, agent gets larger autonomy

principals should not delegate when they can’t find a suitable agent
- e.g. states delegated more to the IMF when the staff’s preferences reflected those of the principals

Question 17

structures of delegation
- mechanisms of control

Answer 17

5 major mechanisms for principals to control their agents:

1. rules vs discretion
2. monitoring and reporting requirements
3. screening and selection procedures
4. institutional checks and balances
5. sanctions

mainly: principal attempts to structure the incentives of agents ex ante so that it is in the interest of those agents to carry out their principals’ desires faithfully ex post

principals use diff mechanisms of control in varying combis to achieve their aims

• depends e.g. on purpose of delegation: for the purpose of enhancing credibility, considerable discretion must be given, visible sanctions will be counter-productive

!agents always possess some autonomy, control mechanisms are costly and imperfect + some slack is tolerated bc main focus is overall benefits

Question 18

mechanisms of control
- rules vs discretion

Answer 18

rule-based delegation = mechanism to constrain the agent: reduces gains from specialization (reduces flexibility + principal must spend time/effort learning about the task and writing the rules)

• e.g. WB (had large discertion at first, but changing to the IO contract)
• only used when agents are diff to control to other means (bc it is relatively inefficient)

discretion = principal articulates the goals of an agent and leave it to figure out how to fulfil the mission

• most useful when uncertainty is high, bc then flexibility is necessary
• also useful when principals have heterogeneous preferences (not so extreme as to vitiate the gains from delegation)

discretion -> greater opportunities for opportunistic behavior by the agent

Question 19

contract between principal and agent specifies:

Answer 19

• scope of authority delegated to the agent
• instruments by which the agent is permitted to carry out its taks
• procedures the agent should follow in employing the instruments

Question 20

mechanisms of control
- monitoring and reporting requirements

Answer 20

monitoring and reporting requirements to reveal info on the agent’s actions

police patrols = direct monitoring of agents by principals to identify malfeasance

• EU: Single European Act specifies advisory, management and regulatory committees to oversee actions European Commission

fire alarms = rely on affected parties outside the agency relationship to bring evidence of slack to the attention of the principals

• more efficient
• EU: individuals can bring complaints before the European Court of Justice

Question 21

mechanisms of control
- screening and selection procedures

Answer 21

principals seek to reduce slack by agents by selecting agents with preferences similar their own

sympathetic agent -> principal can grant the agent greater discretion and employ less costly monitoring mechanisms while still minimizing agency slack

but agents have incentives to misrepresent their true preferences

+ limit amount of choice IOs + high cost of creating an IO that best fits your interest
+ leaders of IOs are often hard to remove (limits choice available to principals at any moment in time)

Question 22

mechanisms of control
- institutional checks and balances

Answer 22

checks and balances to limit opportunistic behavior by agents

e.g. creating bureaus with (partially) opposing mandates
- e.g. bureau for maximizing output and one for minimizing costs

e.g. ICC: prosecutor can be checked by judges, initial court ruling can be checked by a more complete set of juges, UNSC can check prosecutors and judges

checks also by empowering more than one agent + agents with overlapping mandates

• purview regional development banks overlaps with the WB
• WB and IMF increasingly competitors in adjustment lending

Question 23

mechanisms of control
- sanctions

Answer 23

punish agents for undesired actions + reward agents for desired actions

• budget expansion and contraction

Question 24

agents as actors

Answer 24

agents may use their autonomy to influence future decisions by principals (esp. when agent pool small and/or agent has much expertise)

agents can lobby principals for more authority and resources, negotiate terms of contracts and utilize resources and knowledge to influence principals’ preferences or strategies + can set diff states against each other

• e.g. ECHR has influenced state human rights policies and preferences

neo-functionalism = agents use autonomy to expand their influence through functional spillover, political spillover and upgrading common interests

also: societal groups may possess interests that coincide with the delegation of greater authority to the agent and may lobby political leaders to preserve or cede more clout to the agent

Question 25

variation in principal characteristics (key IVs) expected to have an impact on agent behavior, authority or mechanisms of control

Answer 25

1. preferences of the principals (debate on which principals and which preferences to focus on)
2. need for information (= state demand for more and better info -> influence relations with IOs, esp. with crisis situations)
3. structure of the principal (smaller influence when there are more principals)
4. decision-making rules within a collective principal (unanimous decision rules (each state gets veto) in a collective principal -> more room for agency slack than majoritarian rules)

Question 26

variations in agent characteristics = IVs that could produce observable outcomes in principal-agent relationship

Answer 26

1. agent preferences (states more likely to delegate when they identify agents with similar preferences)
2. agent tasks or functions (functions/tasks may alter the terms of the contract + ability of the principal to monitor and sanction an agent)
   - some tasks are more easy to monitor than others
3. agent strategies and permeability (permeability to third parties -> increases agency autonomy + agents have strategies to pursue autonomy)