Transaction Cost Estimation and International Regimes: Of Crystal Balls and Sheriff's Posses

In the aftermath of the 2003 war in Iraq, there is growing concern over the durability of international institutions and their capacity to withstand international change. Transaction costs are a central factor in theoretical explanations of the conditions under which international institutions will persist or be replaced. Rational institutionalists expect regimes to persist after conditions underlying their creation have changed because of the transaction costs of negotiating a replacement regime. Andrew Moravcsik has recently challenged this view, arguing that such costs are generally low and, in any case, arise from domestic and transnational sources rather than interstate bargaining. Others have argued that transaction costs shape the structure of security institutions. All these approaches assume that states can accurately forecast the transaction costs of maintaining or replacing an international regime. However, as an examination of the replacement of the Coordinating Committee on Multilateral Export Controls (CoCom) by the Wassenaar Arrangement demonstrates, this assumption is not necessarily warranted. This essay reviews transaction-cost-based theories of international cooperation and proposes that incorporation of a variable concerned with states' capacity to estimate transaction costs would improve our theoretical understanding of institutional persistence and change. Moreover, it considers problems of defining and measuring transaction costs, assesses factors limiting states' accurate estimation of transaction costs, and presents some propositions regarding transaction cost estimation and regime persistence. The essay also examines the implications of inaccurate transaction cost estimation for recent US foreign policy and international order.