Between crime and war : illicit flows and the institutional design of international policy responses
While the reasons why states create international institutions have attracted sustained academic interested in international relations for more than three decades, the question why states design these institutions in such a variety of ways is only emerging on the academic agenda. This study seeks to contribute to the institutional design debate by transferring the principles of transaction cost economics theory from the context of in- ter-firm to that of inter-state cooperation. Transaction cost economics shares with other functionalist design theories the core assumption that actors adopt the design that best addresses the specific hazards a given problem poses to their cooperative undertaking, whereby they have to balance the merits and drawbacks associated with individual design options. Specifically, states face a dilemma between adopting a mode of governance, which fosters higher levels of compliance (hard law with high levels of obligation, precision and delegation) and one, which allows for flexible adjustments to changing circumstances (soft law). Which type of design is most appropriate, depends on the underlying problem constellation-categorised here based on the three variables asset specificity, behavioural uncertainty, and environmental uncertainty. This study hypothesises that 'harder' governance structures are pertinent when the intensity of asset specificity (the incentives to shirk and the vulnerability to shirking by others) and behavioural uncertainty (the difficulty involved with detecting non-compliance) are high. In contrast, 'softer' institutions are required as the possibility of unforeseen changes in the understanding of the causes, consequences or remedies of a problem increases (environmental uncertainty). Whether form does indeed follow function according to this logic will be tested qualitatively on the basis of four international institutions established between 1988 and 2003. These institutions have in common that they all seek to tackle problems arising at the fuzzy border between crime and war, such as conflict diamonds, the trafficking in narcotic drugs and small arms and light weapons, and money laundering. These institutions differ from each other, however, in terms of their design, spanning the full spectrum from high to low degrees of legalisation.