Domestic Politics, Political Transaction Costs,
and Supranational Delegation
Byoung-Inn Bai
Assistant Professor
Department of Political Science and International Relations
Kookmin University
[email protected]
1. Introduction
The growing importance and expansion of the scope and authority of
international institutions have brought about renewed scholarly interests in the issue
of international delegation. International laws and international organizations now
exert significant impact on the way of governing both domestic and international
politics. While it is apparently a myth that international institutions may take over
national sovereignty soon, it is also undeniable that international institutions, be they
international laws or organizations, play a significant role in both domestic and
international political arena more than ever.
Yet, the study of international delegation suffers from two major drawbacks.
First one relates to the definitional issue. Most literature in International Relations,
especially in the neoliberal institutionalist tradition, discusses international delegation
in as much the same way as the international institutions. Just like international
institutions promote international cooperation by mitigating transaction costs
problems, international delegation is also conceived of as a tool to address the same
kind of problems. This conventional business in the literature, however, leaves it
unresolved the issue of institutional variation since not every instance of international
cooperation entails delegation.
Maybe the most safe and less controversial way would be to define
international delegation as “a conditional grant of authority from a principal to an
agent that empowers the latter to act on behalf of the former” (Hawks, Lake, Nielson
and Tierney 2006). Yet this definition is not immune from uncertainty either. The
1
very terms of principal and agent call out for clear identification in the context of
international delegation and the nature of granted authority and empowerment needs
further elaboration.
This leads to the second drawback. Most studies on international delegation
relies on in some way or another the famous Principal-Agent (P-A) model. Largely
couched in terms of functionalist logic, this model explains the very act of delegation
from the vantage point of functional utility of it. Thus, principals design delegation in
order to resolve such problems as information deficiency and credible commitment,
in which principals grant agents some authority necessary to perform the designated
functions. In this reasoning, the very nature of those delegated functions constitutes
the variation in international delegation. The problem, however, is that the authority
granted to the international agents sometimes goes well beyond the ambit of
functional necessity. The instance in which international institutions take over or
nullify the very decision-making power of the member countries are the case in point.
Under this circumstance, what is delegated is not a function, but the political rights of
decision making.
The essence of international delegation lies in the transfer of political
authority from national to supranational level and the varying degree of granted
political authority constitutes the variation across international institutions. What the
conventional P-A model overlooks is the political nature of granted authority and the
political conditions under which this grant takes place.
By utilizing the literature on “the politics of structural design” (Moe 1990). I
develop a model that identifies the political conditions under which delegation of
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political authority to international agents are most likely. In so doing, I highlight the
impact of domestic politics in the design of international delegation. The key tenet of
“the politics of structural design” literature is that delegation is a function of political
competition among political actors over their relatively preferred policies. According
to this literature, incumbent political coalitions utilize delegation as a means to
prevent future perturbation of their preferred policies. That is, underlying motivation
behind delegation is not to economize on transaction costs, but to gain an upper hand
in the world of political uncertainty.
The direct corollary of this reasoning is that the granted authority to an agent
is a function of the degree of political competition and preference divergence among
the political actors. Applying this reasoning to the case of international delegation, I
hypothesize that the more authority is likely to be granted to the international agent,
the more competitive political actors and the more divergent domestic policy. And
then I test this hypothesis against the data on regional integration organizations.
2. Political Property Rights and the Limits of Principal-Agent Model
The principal-agent model, the dominant approach to delegation, is essentially
functional and efficiency-oriented. Principals (politicians) delegate to agents
(bureaucrats) in order either to address informational deficiency or to ease credible
commitment problems. These two problems are identified as the major concerns of
delegation largely owing to the influence of what Moe (1984) called “the new
economics of organization.” The major insight of the new economics of organization
3
is that under certain circumstances, atomistic market-based exchange will be
supplanted by non-market hierarchical governance forms. This emphasis on the
market-hierarchy connection has fascinated political scientists whose research
interests are organizational design and delegation (Doleys 2000, p. 534).
The central assumption of the new economics of organization is that
information is imperfectly provided in the market place and the acquisition of it is
essentially costly. For this reason, the optimal contracts are those that “frame” an
agreement in which contracting parties do not agree on detailed plans of action, but
on goals and the criteria to be used in deciding what to do when unforeseen
contingencies arise. Market actors intentionally leave the contracts incomplete and
choose instead to rely on intervening decision-making and enforcement mechanisms
to minimize the possibility that actors will breach their contracting obligations (Coase
1937; Williamson 1975, 1985; Milgrom and Roberts 1992, p. 131).
It is in this context that the principal-agent model comes into play. The
efficiency gains expected through organizational development are explained by the
analytical principal-agent model (Fama 1980; Fama and Jensen 1983). In this
framework, the principal is an actor who possesses some bundle of property rights.
Principals want to perform some function, but sometimes find it too costly to do it on
their own. Making a contract with an agent, i.e. forming an organizational structure is
a way to economize on these transaction costs. In so doing, the principal delegates
some rights to the agent who is expected to act in the interest of the principal.
Delegation, however, is not immune to its own potential costs. The rolespecific expertise that the agent possesses takes on an asset specificity that can also be
4
exploited against the principal’s interest (Williamson 1985). This would not be a
problem if the principal and the agent have similar preferences. If not, however,
principals should bear the costs of agency shirking (Ross 1973). The existence of this
cost makes institutional design a vital issue. Principals want to design agency in such
a way as to minimize agency shirking while maximizing the gains from agency
discretion. How they can do so by what means is an open question, however.
Despite the nuanced difference, both the information and commitment
rationales of delegation are fundamentally functional. The choice of delegation is
either to facilitate efficient decision-making or to make commitments credible.
Insofar as delegation can resolve these issues and bring about efficiency gains,
politicians will delegate. However, as convincing as the functional logic might be, it
is not free of limitation--the expected outcomes cannot fully explain the institutional
choice.
After all, every institutional design in one way or another reflects the founding
coalition’s intention to secure their distributional advantage against other groups.
Efficiency gains that are expected from institutional design can only be a by-product
of this distributional concern (Knight 1992). The same holds true for delegation. As
Moe (1990, p. 213) put it, most political institutions “arise out of a politics of
structural choice in which the winners use their temporary hold on public authority to
design new structures and impose them on the polity as a whole” (see also
McCubbins et al. 1987). From this perspective, enacting coalitions are willing to bind
themselves through delegation in order to secure their preferred policy objectives
against possible future perturbation.
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The political and distributive nature of delegation has been explored under the
heading of “coalitional drift” (Shepsle 1992) or “the politics of structural design”
(Moe 1990). This line of thinking posits that there is fundamentally political
uncertainty beyond the uncertainty about policy outcomes that constitutes the core of
the functional logic of delegation. In politics, especially in democratic politics, there
is no guarantee that today’s majority will dominate tomorrow. This political
uncertainty brings about another sort of credible commitment problem associated
with “ill-defined political property rights.” According to Majone (2001, p. 106), the
rights to exercise public authority in a given policy area can be thought of as property
rights, “political property rights.” In politics, these rights to exercise public policy can
never be securely defined due to intrinsic political uncertainty. That is to say, there is
no guarantee that those who possess political property rights today will prevail
tomorrow as well.
The upshot of this ill-defined political property rights is that the policies of the
current majority can be subverted legitimately and without compensation.
Commitment problems of this sort are essentially that today’s majority cannot make
tomorrow’s majority commit to today’s choice. Given this nature of public authority
and politics in general, it is always in the current majority’s interest to create a
mechanism that can secure its preferred policies against the future vicissitudes of
political property rights. And “they do so by imposing structures that appear strange
and incongruous indeed when judged by almost any reasonable standards of what an
effective organization ought to look like” (Moe 1990, p. 137).
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From the vantage point of coalitional drift, making agency structure and
procedure permeable today runs the risk of leaving it permeable to future coalitions.
Coalitional drift is essentially a situation in which the position of the dominant
coalition shifts relative to that of the enacting coalition. The peril of coalitional drift
makes it a fundamental concern for politicians to insulate their preferred policies from
future perturbations. It, then, becomes important for the current coalition to insulate
agency from external influences and to increase transaction costs for future coalitions
that may attempt to alter policy (Macey 1992; Moe 1990; Moe and Caldwell 1994).
Coalitional drift contains two associated implications. First, coalitional drift
may result in a future coalition passing legislation that redefines an agency’s goals,
structure, or rule-making process. If it is easy for future coalitions to pass new
legislation that redesigns agency ex ante, no amount of present-day safeguards can be
effective. Second, since the future coalition is in charge of ex post controls, making
agency subordinate to the principals may provide the future coalition with a means to
exploit control power in order to redirect the agency closer to its policy preferences
(Epstein and O’Halloran 1994). Then, institutional design to address coalitional drift
should be to increase “political transaction costs” for future coalitions to change
agency policy. Political transaction costs are those costs associated with maintaining
and monitoring the principal-agent contract with the administering agency, which
include the difficulty of generally altering agency policy and intruding into agency
processes (Wood and Bohte 2004, p. 183).
The institutional design that addresses the issue of coalitional drift yields its
own dilemma, however. By placing high political transaction costs on agency control,
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the enacting coalition can make it difficult for future coalitions to alter policy. At the
same time, this design makes it easier for the agency to act independently, and thus
increases the peril of bureaucratic drift. Thus, there is a trade-off between coalitional
and bureaucratic drifts: any design that addresses effectively the issue of bureaucratic
drift may exacerbate that of coalitional drift and vice versa (Shepsle 1992). This is
fundamentally due to the fact that enacting coalitions cannot bind future coalitions
without binding themselves as well.
At the heart of this trade-off lies the transfer of political property rights from
the principal to the agent. As long as the relevant principals hold the political property
rights, the ability for the current coalition to prevent agency intrusion by the future
coalition is limited. In order to bind future coalition, it is inevitable to grant political
property rights, part or full, to the agents so that they become totally free from any
future perturbation. By granting political property rights to the agent, current coalition
effectively turns agency into trustee (Majone 2001). This is a risky business, of
course, since there is no guarantee that the endowed agent will function in the
interests of current coalition. Hence the trade-off between coalition and bureaucratic
drifts.
3. Domestic-International Nexus and the Supranational Delegation
Delegation to supranational institutions is fundamentally a matter of
institutional design in which states give up part of their sovereignty related to
independent decision-making. Just as dominant theories of delegation in the context
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of domestic, mostly American, politics take a functional and efficiency-oriented view,
so do those theories in international relations. Countries do delegate to supranational
institutions in order to address such problems as informational asymmetry,
incomplete contracting and credible commitments that are associated with
international cooperation (Abbott, Keohane, Moravcsik, Slaughter, and Snidal 2000;
Koremenos, Lipson, and Snidal 2001; Moravcsik 1998; Pollack 2003). This
functional logic of delegation in international relations is in essence an extension of
neoliberal institutionalism which emphasizes the role of international institutions in
minimizing the prohibitive impact of transaction costs on international cooperation.
As convincing as it goes, however, this functional logic cannot fully address
the issue of variation across different international institutions given that problems of
incomplete contracting, informational asymmetry, and credible commitment are
prevalent in any kind of international cooperation. Further, there is an anomaly in
those theories that identify a functional logic of delegation to supranational
institutions: neoliberal institutionalism essentially suggests that international
institutions without exclusive authority in rule-making, monitoring, and interpreting
can actually facilitate international cooperation by guaranteeing a proper flow of
information among the countries.
In the neoliberal institutionalist view, institutional choice is ultimately guided
by efficiency considerations, with countries struggling to choose whichever
institutional forms will enable them more effectively to respond to market failures,
mitigate collective-action problems, and generally further their common interests
(Gruber 2000, p. 63). At the core of this reasoning lies the observation that complex
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web of interdependence creates ‘international policy externalities’ which, in turn,
create incentives for policy-coordination among countries (Moravcsik 1993, p. 485).
Against this backdrop, countries can significantly improve their collective welfare if
all make the necessary behavioral adjustments. This possibility of mutual gains,
however, is not sufficient to facilitate cooperation. There is a fundamental problem
that impedes cooperation among states: collaboration problems as in the Prisoner’s
Dilemma. Individually rational action by states could lead to a Pareto suboptimal
equilibrium. The problem states face is to find ways to bind themselves and others in
order to reach the Pareto frontier (Martin and Simmons 1998, p. 744).
It becomes important, then, to define acceptable standards of behavior at the
outset and to determine at any given point of time whether its transaction partners are
complying with the terms they agreed. Neoliberal institutionalism suggests that
international institutions can play a useful role in formalizing the initial terms of
cooperation, monitoring subsequent behavior, and efficiently transmitting information
about each party’s past and present records of compliance. The role that international
institutions play, however, is no more than collecting and distributing information
among states because, once opportunistic behavior is detected and identified, the titfor-tat logic of decentralized enforcement takes over (Axelrod and Keohane 1985;
Keohane 1984). That is, once actors are able to distinguish cheaters from cooperators
with the help of international institutions, they are expected to effectively dole out
punishments and rewards. Thus, from the vantage point of the original formulation of
neoliberal institutionalism, international institutions can improve the prospect of
international cooperation despite their lack of any discretionary power.
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The problem, however, is that some international institutions play a role well
beyond the one suggested by neoliberal institutionalism. In addition to serving as
watchdogs, passively monitoring compliance with the terms of the agreement, many
of these institutions also empower supranational bodies to modify or clarify those
terms. Further complication comes out of the recognition that collaboration is not the
only problem that makes cooperation unstable. Coordination problems, the existence
of multiple Pareto-optimal equilibria, raise a far less serious impediment to
international cooperation (Krasner 1991; Stein 1983; Martin 1992). Under this
circumstance, it is not enough for the institutions to merely resolve collaboration
problems through monitoring and other informational functions. They should also
provide a mechanism for resolving distributional conflict associated with multiple
equilibria.
It is in this context that such issues as incomplete contracting, credible
commitments and “focal points” are singled out as major considerations for countries
to pool or delegate their sovereignty to supranational institutions (Abbott and Snidal
2000; Garrett and Weingast 1993; Moravcsik 1998; Pollack 1997). The cases in point
are an independent judicial body and a supranational institution’s agenda-setting
power. By delegating or pooling their sovereignty to supranational institutions, the
argument goes on, countries can overcome such obstacles to cooperation as multiple
equilibria and credible commitments. The problem, however, is that these benefits are
the ones that neoliberal institutionalism has envisioned to be obtained by having mere
watchdog institutions (Keohane 1984). The issue, then, is to specify the conditions
under which countries delegate part of their sovereignty to supranational bodies
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instead of relying on non-discretionary institutions. This issue is closely related to
setting the null hypothesis to supranational delegation (Lake et al. 2006). If both nondiscretionary institutions and those with discretionary power can facilitate
international cooperation, we should not expect the lack of cooperation in the absence
of supranational delegation. Instead, we should expect reliance on non-discretionary
institutions in case supranational delegation does not take place. Thus, it becomes
important to identify the conditions under which international cooperation
necessitates discretionary supranational institutions.
Granting monopolistic agenda-setting and judicial authority with well-defined
goals and objectives to a supranational institution can be seen as the enacting
coalition’s effort to rule out any destructive challenge to the current terms of
agreement. From the vantage point of the political transaction costs approach, the
enacting coalition can do so by setting the agency’s goals and objectives in a legal
framework and by introducing mechanisms that can protect them from any possible
future perturbation. This may explain why the founding fathers of the EC stipulated
the roles and goals of the Commission in the Treaty of Rome whose amendment
requires unanimous agreement. This is, of course, an expression of member states’
commitments to the path of European integration (Majone 2001). From the
perspective of the political transaction costs approach, they do so by significantly
increasing those costs associated with reneging on the agreement.
Then, what kind of factors explain an enacting coalition’s willingness and
motivation to increase political transaction costs? To answer this, let’s consider the
typical situation in which a commitment problem arises due to domestic vetoes. A
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simple spatial model is enough to show this situation. In Figure 1, SQd denotes the
domestic status quo. V, P and F are ideal points of a domestic veto player, the
executive and the foreign counterpart, respectively. As conventional spatial model
suggests (Romer and Rosenthal 1978), the range of policy outcomes that the agendasetter, the executive in this case, can introduce is determined by the location of the
status quo and a veto player’s ideal point with the maximum value at V─ |V─SQ|. In
Figure 2-1, Xd denotes this maximum point. Then the area from SQd to Xd defines the
domestic win-set into which any international agreement should fall. The
commitment problem in this special configuration comes down to the issue of making
agreement within the zone of domestic win-set since any agreement signed between P
and F is doomed to fail if it is outside this area.
Domestic Win-set
SQd
V
Xd
(V─ |V─ SQ| )
P
F
Figure 1. Domestic Politics and Commitment Problem
This can be an automatic process since after all P should take into account V
(cf. Milner and Rosendorf 1997). If, however, we consider that the agreement and
13
implementation stages of cooperation might take place at different points of time
under different circumstances, then it is always possible that the agreement can go
beyond this area of domestic approval. If that happens, then implementation will fail
and so will cooperation. Then, what kind of mechanism can guarantee that agreement
always falls into this area? This is what Martin (2000) explores. According to her, the
solution to this possibility is to get the veto players (the legislators in her case)
actively involved from the early stage of cooperation (bargaining).
I argue that there is another possibility. Instead of ceding to domestic veto
players, P and F can actually collaborate in order to induce the possible outcome
closer to their ideal points. Consider Figure 2. This is an extension of Figure 1 on a
two-dimensional issue area. The horizontal line is a substantial issue dimension as in
Figure 1. The vertical line is a dimension associated with the degree of cooperation. V,
P, F are ideal points of domestic veto players, the executive and the foreign
counterpart in this two dimensional issue space. With the assumption that indifference
curves are circular i.e., each actor is equally sensitive to both dimensions, Figure 2
identifies the possible range of outcomes under different levels of cooperation.
Consider the bold circle around V first, which is a reference case for the
dashed circle. This is the case that depicts possible outcomes with those parameters as
in Figure 1. Given that V’s indifference curve is circular and V is a pivotal actor in
determining the outcome of cooperation, outcomes on the horizontal dimension are
those points that crosssect V’s indifference curve and the contract lines among P, F
and V. Thus, the range of possible outcomes is from X1 to Xd. Note that this range is
14
obtained by putting F on the vertically same point as V. If F moves up, thus F prefers
more cooperation than V, the range of possible outcomes shrinks in favor of V.
Substantive Issue Dimension
SQd
V
X1
Xd
X2
Cooperation Dimension
P
F
P
SQI
C
V, F
P
V
VV
F
Figure 2. Domestic Politics, International Cooperation and Policy Outcomes
The problem for P is that the outcome through cooperation is worse than the
one that she can enjoy without cooperation. She could set the policy at Xd if no
15
cooperation is required. If not, she has to experience at least a slight loss of utility
since the outcome through cooperation gets farther from the point that she could
otherwise achieve. However, P and F are not so hopeless. Now consider the dashed
circle. This is an indifference curve of V when P and F set the level of international
cooperation at point C, which is the maximum level of cooperation on the vertical
dimension given V’s indifference curve. If P and F are successful in setting the level
of cooperation at point C, then SQI becomes the point at which V’s indifference curve
passes without any alteration in her choice on the horizontal dimension.
By setting the new status quo here, P and F can actually expand the radius of
V’s indifference curve which would otherwise have been impossible. As a result of
this, the range of possible outcomes moves toward [Xd, X2], which is much closer to
both P’s and F’s ideal points. Note that this gain from enhancing international
cooperation is going to be larger as P’s ideal point moves far away from V’s. Thus,
the farther the distance between P and V, the higher the potential gains from
cooperation for P. Conversely, when P and V are closer, this additional gain through
increasing cooperation does not provide any more flavor than when they are far apart.
However, this additional gain to P and F through enhanced cooperation is not
secure. It is apparent that V will never be satisfied with this new setting and that she
will try to change the situation whenever she has a chance. From P’s point of view,
then, it becomes important to secure this new setting against possible perturbation by
V in the future. How can she do this? There is no domestic solution that can secure
this new policy status quo against future perturbation by domestic veto. Only external
constraints can help P resolve this problem. It is in this context, I argue, that the
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design of supranational institutions becomes an important issue for the enacting
coalition. The political transaction costs approach to delegation suggests that the
enacting coalition effectively increases the costs of changing policies by granting
more authority to the agent and by making it hard to intrude into agency activities.
Likewise, P can secure its preferred outcome by granting more authority to
supranational institutions and, thus, making it more costly for V to intrude into this
policy process.
Delegation to supranational institutions is above all a means to precommit
governments to a stream of future decisions by raising the costs of reneging on
original agreements. Hence, as neoliberal institutionalists have argued, delegation is
primarily a solution to the credible commitment problem. What has been overlooked,
however, is that governments can credibly commit only by generating new kinds of
transaction costs, political transaction costs (Moe 1989; Wood and Bohte 2004),
associated with the difficulty in changing policy direction, and that these costs
disproportionately affect domestic political actors. By delegating part of sovereignty
to supranational institutions, enacting governments not only bind themselves, but also
create additional costs to future domestic governments that may have opposing
preferences over the policy goals at stake. The rules and procedures that are at the
heart of the institutional design of delegation introduce a bias in policy directions
along with political transaction costs. Those who oppose this direction, thus, should
bear additional costs to change the nature of the policy. The more prohibitive these
costs, the securer the original policy goal.1
1
In a somewhat similar vein, Reinhardt (2003) shows that international institutions promote
cooperation not by lowering transaction costs, but by actually increasing them when those institutions
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4. Empirical Examination
The above discussion highlights the essentially political and distributive
nature of delegation. As the theories of “coalitional drift” and “the politics of
structural design” suggest, enacting governments are willing to bind themselves
through delegation in order to secure their preferred policy objectives against
domestic opposition (Shepsle 1992; Moe 1989, 1990). Likewise, delegation of the
right to propose, legislate, implement, interpret, and enforce agreements reflects
enacting governments’ intention and willingness to “lock in” the future direction of
policy against those who have conflicting preferences. The corollary of this reasoning
is that motivation and willingness to grant political property right to the agents will
increase as the political preference diverge among the political actors. The same
should hold true for the case of supranational delegation. The degree of granted
authority to the supranational institutions should be a function of domestic political
preference divergence. Now I turn to an empirical examination of this hypothesis
against the data on the regional integration organizations.
Dependent Variable and Data Structure
Available dataset for the empirical examination is the Integration
Achievement Score (IAS), which was first developed by Hufbauer and Schott (1994)
have actual enforcement power. Working on the WTO dispute settlement system, he argues that the
costly nature of eliciting a ruling from WTO provides pro-liberalization political leaders with
additional leverage to induce concession from domestic opponents. Since WTO has actual enforcement
power, any adverse ruling would be costly to the country. With high transaction costs of litigation,
domestic opponents may prefer to settle down the issue before actual ruling comes out. For this reason,
according to him, enforcement power associated with high transaction costs secure pro-liberalization
policies against domestic oppositions.
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and then further developed by Feng and Genna (2003). This dataset covered 16
regional integration organizations originally, but 20 more regional organizations were
added later in the new version released in 2004. My analysis is conducted on the
member countries of the original 16 organizations from the year that each regional
group was formed up to 2004. Since each regional group has a different starting year,
the number of observations significantly varies across regional groups, with the
EC/EU having the most observations. This dataset was originally developed in order
to generate composite integration scores that combine six major categories of regional
integration: trade in goods and services, degree of capital mobility and labor mobility,
degree of coordination in monetary and fiscal policies, and the importance of
supranational institutions in decision-making. Out of these six categories, I only
utilize the measure of the importance of supranational institutions in decision-making
as the dependent variable.
This variable is ordinal so that it varies along five categories that represent the
authority provided to supranational institutions. While the original index distinguishes
the cases in which no explicit supranational institutions exist from those in which
supranational institutions only play a nominal role, I combine these two categories
into a single category representing that countries delegate no authority to
supranational institutions. With this as a baseline category of no-delegation (coded 0),
the degree of delegation proceeds from an information-gathering and advisory role
(coded 1) to supranational institutions’ ability to amend (coded 2), and veto proposals
19
(coded 3). 2 As a result, the final variable becomes a four-category ordinal one in
which the level of delegated authority to supranational institutions is measured in
ascending order.
A notable feature of this dataset is that it is based on a certain sampling
structure in which each observation is nested within a country and again within a
regional group. In the language of hierarchical modeling, the observations in these
data are structured along three hierarchically ordered levels, moving from level 1
observation to country (level 2) and regional groups (level 3). Since this nested
structure of data causes estimation bias if not properly addressed (Steenbergen and
Jones 2002), I utilize hierarchical modeling that considers this nesting effect through
the incorporation of random effects across varying levels.
While the dataset relies on a fairly well-defined hierarchical structure, there is
an issue of cross-classification or multiple-membership in the original dataset. Crossclassification and multiple-membership are the cases in which lower-level units are
observable at different upper-level units. This occurs in the original dataset for two
reasons. First, the original dataset lists three different regional groups in Asia
(ASEAN, AFTA and EAEC) while there is a significant overlap of membership
among these groups. Second, which is more critical, members of APEC have dual
membership over the whole observation years while a significant number of EFTA
members has changed their membership during the observation years. The existence
of cross-classification and multiple-membership issues complicates the random
effects by rendering the very assumption of hierarchical structure problematic
2
Original coding system is as follows: 0 = no supranational institutions, 1 = nominal institutions, 2 =
information gathering and advisory role, 3 = ability to amend proposal, 4 = ability to veto proposal, 5 =
primary decision-making node.
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(Raudenbush and Bryk 2002, Ch. 12; Snijders and Bosker 1999, Ch. 11; Rasbash and
Goldstein 1994; Browne et al. 2001).
Since addressing these issues under the condition of ordinal dependent
variable with three levels is a daunting task, I instead choose to rearrange groupings
in such a way to guarantee a clean hierarchical structure of the data. The first issue
related to regional groups in Asia can be easily resolved by incorporating members in
those three groups that overlapped with each other into one single group. As these
three groups are institutionally identical, this regrouping does not cause any loss of
information as far as the measure of the dependent variable is concerned. The second
problem, however, cannot be addressed by simple regrouping. Since this is the main
locus of the problem in the data structure, I simply drop these two groups (APEC and
EFTA) out of the sample. This choice could result in the loss of information, but can
be justifiable by virtue of the estimation’s tractability.
Key Independent Variable
Key independent variable of this analysis is the degree of preference
divergence among the domestic political actors. Constructing a measure of domestic
political preference divergence entails two considerations. The first is the
identification of political actors that are constituted in domestic political institutions.
The second is the actual distribution of preferences among those actors. While the
former issue has been widely addressed in the veto player literature (Tsebelis 1995),
the latter has received scant attention. The identification of domestic political actors,
however, does not deliver the actual distribution of preferences among them. In fact,
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most literature on veto players relies on the number of veto players as a proxy for
domestic political institutions with the assumption that veto players will represent
different sets of preferences (Garrett and Lange 1996, p. 66). Seemingly plausible,
however, this assumption is rather strong for those veto players can always be
preference allies over the policy issues. What matters more is the actual distribution
of preferences among domestic veto players, not the number of veto players per se.
Measuring directly the distribution of domestic political actors’ preferences is
a daunting task since it may vary along issue areas and be perturbed by contingent
factors. Instead, we may introduce a simple distributional assumption about domestic
political actors’ preferences and trace the alliance patterns among them. Henisz
(2002) constructed the Political Constraint Index utilizing this strategy. Relying on
the simple assumption that the preferences of domestic political actors are
independently and identically drawn from a uniform distribution, he first calculates
the range of possible policy outcomes upon which political actors can agree. The next
step is to alleviate the distributional assumption by allowing preference alignments
among political actors. This second step is necessary since the assumption that
preferences are uniformly distributed is rather strong and unrealistic and makes the
initial measure rely solely on the number of de jure veto points in a given polity. The
problem here is that the constitutional existence of veto power does not necessarily
provide a de facto veto threat. For example, if the party controlling the executive
completely controls the other branch of government, the polity comes down to a
unitary actor regardless of the number of veto points in the system. Thus, without
considering the alignment and heterogeneity of the political actors that inhabit
22
domestic institutions, it is impossible to construct a coherent index that captures the
actual distribution of preferences among domestic political actors.3
The final index measures the extent to which a given political actor is
constrained in his or her choice of future policies. Since domestic policy change is
more constrained when institutional actors have heterogeneous preferences, it is
suitable to use this index as a measure of the domestic preference divergence, the key
independent variable. The biggest merit of this index is that it provides a structurally
derived and internationally comparable measure of domestic political structure with
comprehensive coverage of the observation years. This variable ranges from zero to
one in which the degree of preference divergence increases in an ascending order. I
take this Political Constrains Index as a key independent variable and expect positive
association with the dependent variable.
Control Variables
In the neoliberal institutionalist tradition, supranational delegation is
conceived of as a means to address market failures, mitigate collective-action
problems, and generally further their common interests. At the core of this reasoning
lies the observation that complex web of interdependence creates ‘international policy
externalities’ which, in turn, create incentives for policy-coordination (Abbott et al.
2000; Koremenos et al. 2001; Moravcsik 1998). In a somewhat similar vein, theory
of international regulatory failure argues that supranational delegation is a viable
solution to the regulatory problems stemming from the dense web of economic
interdependence and the possibility of strategic use of national regulatory policies
3
For more detailed discussion, see Hensiz 2002, 2004.
23
(Gatsios and Seabright 1989). Both of these reasoning suggest that the costs of
negative international externality will increase along with the deepening economic
interdependence and the nationally divergent regulatory policies. Hence the enhanced
motivation and willingness to supranational delegation.
Following this logic, I construct two variables: intra-region trade dependence
and the deviation of regulatory policies within a regional organization. For the intraregion trade dependence, I calculate the share of intra-region trade in country i’s GDP
within group j at time t utilizing the Expanded Trade and GDP Data (Gleditsch 2002).
The second variable is constructed by the Fraser Index (Gwartney and Lawson 2004),
which measures the national regulatory policy portfolio. I take the standard deviation
of Fraser scores among the countries within group j at time t as a measure of
regulatory policy divergence. This variable varies at the regional-organization level,
not the national level, and over time.4
Third control variable pertains to the distribution of power within a region.
There have been several attempts to attributes the institutional variation across the
regional organizations to the regional distribution of power. The main argument of
these attempts is that asymmetric distribution of power do contribute to the
institutionalization of regional cooperation (Mattli 1999). While this literature does
not directly touches upon the issue of supranational delegation, it is also plausible that
supranational delegation becomes a natural corollary of the institutionalized interstate relationship. In order to control for this, I construct a variable that measures
4
This index reports national ratings with 5-year intervals. For this reason, I extrapolate that the ratings
in between two observation points remain the same as the previous one. For example, the ratings of
each country from 1975 (the first observation point) to 1979 (one year before the second observation
point) are assumed to be same. The same assumption holds for other years.
24
power parity among the countries within a region. I use national GDP as a simple
proxy for national power and calculate the standard deviation of national GDPs
within a region over time. The operational assumption here is that the higher value of
standard deviation indicates a more dispersed distribution of power among the
countries.
Remaining control variables pertain to the possibly facilitating or hampering
factors of supranational delegation. Neo-functionalists have long argued that regional
integration is a function of prolonged relationship among the countries in which the
positive spill-over effect flourishes. Regardless of giving credit to this reasoning, it is
thinkable that the abhorrence or hesitance to supranationalization may be mitigated as
the regional cooperation goes longer. For this, I include a variable that counts the
duration years since the inception of regional organization till the dismissal of it.
If the longevity of inter-state relationship is a facilitating factor, the existence
of staunch governments that put priority on national sovereignty may be a hampering
factor to the supranational delegation. Since the supranational delegation inevitably
brings about sovereignty costs, the plausibility of supranational delegation should be
conditioned by the relative weight that governments put on their national sovereignty.
To address this, I include two variables that calculate the portion of right-wing and
nationalist governments, respectively, within a region in a given year using the World
Bank’s Database on Political Institutions (Beck, Clark, Groff, Keefer and Walsh
2001).
Estimation Results
25
For the estimation, I utilize a three-level hierarchical random intercept model
in order to address the nesting structure of current data that is discussed earlier. The
basic premise of a hierarchical model is that there is natural heterogeneity among
units of analysis due to unmeasured factors and that this natural heterogeneity lies in a
subset of regression coefficients (Diggle et al. 2002, p. 169). The random intercept
model is then premised on the assumption that units of analysis differ in their
intercepts and that the estimated regression intercept is a linear function of those unitspecific intercepts with unit-level error terms. In the current context, this means that
there exists natural heterogeneity among the countries and regional groups and that
this heterogeneity can be captured by introducing country- and regional group level
error terms associated with varying intercepts at each level.
This random intercept model is combined with an ordered probit model in
order to address the categorically ordered nature of the dependent variable. The
estimation method then becomes an ordered probit random intercept hierarchical
model. The basic model that I estimate with this method is formulated as follows:
Pr obit ( Dtij  m)   m  1 PoliticalConstra int stij   Ctj   Ktij v 00 j   0ij   tij
where m represents each category of the dependent variable ranging from one to four,
 m is thresholds of the model,
C
tj
and  Ktij are sets of control variables at the
regional and country level respectively,  0ij and 00 j are country- and regional group
level random effects respectively, and  tij is an observation level error term that is
assumed to have standard normal distribution.
26
Table 2: Determinants of Supranational Delegation (Ordered Probit Analysis)
Political Constraints (PC)
Intra-Region trade Dependence
(TRA)
Heterogeneity of Regulatory Policies
(SD_FRASER)
Power Parity
Duration
Model 1
Model 2
Model 3
Model 4
0.64***
(0.2)
0.77**
(0.33)
0.43
(0.34)
-0.01
(0.46)
0.01*
(0.01)
0.27
(0.32)
0.11
(0.18)
0.64
(0.31)
0.03
(0.43)
0.01*
(0.01)
2.79***
(0.88)
0.27
(0.37)
0.46**
(0.22)
0.49
(0.31)
0.66
(0.42)
0.13
(0.55)
0.02**
(0.01)
1.41*
(0.81)
-0.27
(0.23)
0.81*
(0.43)
0.31
(0.53)
0.02**
(0.01)
3.19***
(1.03)
-0.52
(0.65)
-0.56
(0.51)
0.3
(0.78)
-0.63
(1.12)
3.47***
(0.36)
6.06***
(0.70)
11.61***
(1.30)
3.03***
(1.09)
7.40***
(1.74)
8.55***
(2.35)
2476
-389.18
PC*TRA
PC*SD_FRASER
PC*Power Parity
Right-wing Governments
Nationalist Governments
Lagged DV1
Lagged DV2
Lagged DV3
THRESHOLD 1
THRESHOLD 2
THRESHOLD 3
N
Log-Likelihood
3.37***
(0.43)
5.87***
(1.02)
11.94***
(1.34)
2.32***
(0.96)
6.41***
(1.63)
8.0***
(1.98)
2625
-475.84
3.38***
(0.43)
5.89***
(1.02)
11.78***
(1.1)
2.29***
(0.90)
6.37***
(1.58)
7.97***
(1.93)
2625
-475.14
0.32
(0.78)
-0.67
(1.11)
3.48***
(0.36)
6.07***
(0.71)
11.65***
(1.31)
2.72***
(1.07)
7.09***
(1.73)
8.23***
(2.37)
2476
-390.03
Note: (1) Heteroskedasticity robust standard errors are in parentheses. All the estimates are
obtained from the GLLAMM module in STATA v. 12.
(2) *** = p>0.01, ** = p>0.05, * = p>0.1
27
<Table 2> reports the estimation results from various model specifications. In
order to address the longitudinal nature of the data and the inertia of the dependent
variable, I included in each specification three dummy variables that indicate the
value of the lagged dependent variable at time t-1. Model 1 estimates the impact of
political constraints on supranational delegation against such variables as intra-region
trade dependence, deviation of national regulatory policies, power parity, and
duration years of each organization. Model 2 adds two interactive terms in Model 1,
and Model 3 includes all the control variables. Model 4 tests if there is any interactive
effect between political constraints and other relevant variables while controlling for
the effects of all other variables.
From Model 1 to Model 4, the key independent variable, political constraints,
shows expected sign and remains statistically significant. It does not satisfy statistical
significance on its own in Model 2 under the presence of interactive term with intraregion trade. Yet, the interactive term itself reveals highly significant effect with
positive sign, which suggests that the effect of political constraints on supranational
delegation increases positively as intra-region trade goes higher.
Since the interactive terms make the effect of individual independent variable
conditional upon the value of the other variable in interaction, the marginal effect is
calculated by taking the first derivative of the equation. In Model 4, marginal effect of
political constraints on supranational delegation gets even larger in the presence of all
the relevant interactive terms. This suggests that the effects of political constraints are
not only significant on its own, but intensified as the higher value of other variables.
28
The performance of political constraints variable is in sharp contrast to other
control variables. Except duration years of regional organization, none of the other
variables exhibit coherent effects. This holds true even when taking into account
possibly conditional effect of them via interactive terms.
6. Conclusion
The underlying motivation of this research is that political nature of
international delegation is often times put aside in the study of international
delegation as well as international institutions. Institutions are not only tools for
economizing transaction costs, but means to solidify existing political and
distributional configuration. Institutional design as such reflects the motivations for
those who are in power to perpetuate their reign against future uncertainty. The same
should hold true for the case of international delegation.
International delegation is an instance in which policy-making authority at
domestic level is transferred to supranational level. This entails surrendering political
property rights, the only assets political actors possess, to international agent. Political
transaction approach to delegation and the literature on “the politics of structural
design” suggest that this surrender of political property rights is not unthinkable, but
rather quite natural in light of the political competition among the political actors
under the condition of political uncertainty.
By utilizing this reasoning, I developed a model that links the distribution of
political preference at the domestic level to the instance and variation of international
29
delegation. In this model, I hypothesized the degree of authority granted to
international agent is positively associated with the degree of domestic political
preference divergence.
Quantitative analysis against the varying degree of international delegation
across regional integration organizations in large part supports the validity of this
hypothesis. Domestic political constraints, i.e. domestic political preference
divergence, shows positive association with the degree of granted authority to
regional integration organizations. And, this positive association remains stable and
strong across various specifications.
Admittedly, empirical analysis reported here is preliminary at best. It needs
further elaboration and robustness check, not to mention that even the reported results
call out for thorough investigation. Yet, the empirical findings no matter how
preliminary they are seem to be suggestive to the future direction of research. More
elaboration on theoretical model and empirical examination seem not only required,
but promising.
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