Discovering Cooperation: A Contractual Approach to Institutional Change in Regional International Organizations

Abstract

This paper offers a fresh perspective on institutional change drawing on recent advances in the economic theory of contracting. Contractual incompleteness enhances organizational flexibility, but only at the cost of perceptual ambiguity. We hypothesize that the willingness to engage in a highly incomplete contract depends on shared understandings which reduce the cost of perceptual ambiguity. These claims are evaluated using a new dataset on delegation of state authority to non-state actors in 35 regional international organizations from 1950 to 2010. We are able to confirm across a wide range of models and specifications that reform is guided by contractual incompleteness and that contractual incompleteness is rooted in shared historical experience.