Filling in the Folk Theorem: The Role of Gradualism and Legalization in
International Cooperation to Combat Corruption
Kenneth W. Abbott
Northwestern University School of Law
k-abbott@northwestern.edu
Duncan Snidal
University of Chicago
snidal@uchicago.edu
DRAFT
Comments Appreciated
Folk Theorem
Abbott & Snidal
Filling in the Folk Theorem: The Role of Gradualism and Legalization in
International Cooperation to Combat Corruption
Cooperation theory tells us much about the possibility of cooperation, but surprisingly
little about how we actually get to cooperation.1 Given the circumstances of an issue, the
theory identifies the outcomes that can be sustained by the parties (i.e., possible
equilibria). Those that make the parties better off than alternative equilibria, especially
the status quo ante, represent “cooperative” outcomes. Cooperation theory further
analyzes how contextual or institutional changes — such as increasing time horizons and
issue linkage, or decreasing uncertainty and membership — create new cooperative
equilibria or make existing ones more stable. But the actual attainment or transition to
any particular cooperative outcome remains an article of faith that “If there is a
cooperative equilibrium, states will find it.” It is a “big bang” theory of cooperation
which presumes that cooperation will suddenly occur without offering any account of its
development.
This big bang approach does not correspond to what might be called the “natural history”
of cooperation. Most real international problems have persisted for a significant period of
time before cooperation occurs, sometimes including a period during which the
possibility of beneficial cooperation was not even recognized. Examples include the
development of various types of international economic cooperation in the twentieth
century, on-going efforts to promote cooperation on international health and human
rights, and the corruption problem we analyze below. Alternatively, even when a
problem emerges precipitously — perhaps due to a new technology like MIRV missiles
or a relatively sudden change in circumstances such as global warming — actors need to
time to determine cooperative solutions and resolve the host of difficult problems of
getting to them. Consequently, cooperation is more typically attained either through a
series of smaller steps and/or through on-going processes of negotiation rather than
through a big bang.
This paper develops an analysis of gradualism, and specifically gradualism through
legalization, as a way to understand the development of international cooperation.
Gradualism – by which we mean breaking cooperation into a series of steps — is
valuable because it addresses the series of problems that make big bang cooperation
difficult. It provides a means for actors to learn about an issue in both a technological and
normative respects, and to reduce uncertainty about the issue and the goals of the actors.
Gradualism further provides a setting to address the bargaining and distribution problems
that make cooperation difficult, and to select or develop a focal point for cooperation.
Equally important, it provides a way to counteract the significance of the status quo as a
compelling but noncooperative focal point. Finally, gradualism helps to create the
1
By “cooperation theory” we mean the body of results drawn from game theory that undergirds
“liberal institutionalist” international relations theory. These results were first used to
demonstrate the possibility of decentralized cooperation in anarchy and, more recently, to analyze
the role of institutions and norms in international politics.
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common expectations need to overcome the Assurance problem which makes the
transition to an agreed equilibrium difficult. For these reasons, actors often can achieve a
gradual approach through legalization even when big bang cooperation would fail.
We focus on legalization because it is the prevalent form of gradualism in international
relations today.2 International legalization refers to a set of rules, norms, institutions and
practices that shape the expectations and interactions of international actors (Abbott et. al.
2000). As such, it provides a framework of accepted behaviors and procedures within
which actors are able to explore and establish new cooperative arrangements. However,
the legalized framework varies substantially across different areas — from “hard”
legalized arrangements with precise rules, high obligation and significant delegation to
“soft” arrangements that are relatively low on all these dimensions (Abbott and Snidal
2000) — and the success of gradualism in an issue may depend on the form of
legalization. Sometimes the applicable legalized arrangement is predetermined by prior
cooperative agreements for how certain problems will be handled (e.g., global trade
issues are handled through the WTO),but in many cases actors have some latitude in
choosing a legalized arrangement that will be more effective for the cooperation problem
they seek to solve (forum-shopping). Whether the choice of legalized process is
exogenous or endogenous, it plays an important role in determining whether actors will
achieve cooperative agreements.3
The process of legalized cooperation is often mixed with the creation of new rules that
change the legalization in an issue area. Any legalized solution to a cooperation problem
requires working out an agreement within the pre-existing rule and procedures, which
may strengthen or elaborate those rules. But since much of international relations is thinly
legalized, international cooperation sometimes takes the form of articulating new legal
arrangements, or substantial “hardening” of existing soft legalization. Here the gradual
aspects of cooperation are often reflected in slow, stepwise movements to higher levels of
legalization.4 We thus use legalization in an expansive sense to include both processes
of cooperation that operate within the prevailing level of legalization and cooperation that
creates new rules to augment existing ones.
To demonstrate the importance of gradualism and legalization we analyze international
efforts to combat corruption, with an emphasis on the development of the 1997 OECD
2
For a discussion of legalization see Abbott at. al.(2000). This concept of legalization is very
broad so that the interesting questions are not about whether particular international issues are
legalized but why various areas are legalized to different extents and in different ways (Abbott
and Snidal 2000). We do not discuss the details of legalization here, but build on that prior
analysis.
3
Thus we do not claim that gradual or legal processes will always succeed. See Abbott and
Snidal (2002a) for a discussion of why the WTO was unable to take effective action on bribery
because it was too legalized.
4
In a thin legal environment we are probably more likely to see increases in legalization to
promote cooperation, but “delegalization” may be more conducive to cooperation in other cases.
This corresponds to the general point that “more is not always better” with respect to international
legalization, and softer legalization may be preferable to harder legalization for solving some
problems.
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“International Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions” (Anti-Bribery Convention). This Convention
emerged through a gradual and legalized process that overcame a number of difficulties
that had foiled earlier big bang efforts against foreign bribery by multinational firms. In
brief, a legalized process through the OECD offered a setting where states could learn
about the problem of corruption, reduce their uncertainty, change their positions, craft a
series of steps towards a cooperative agreement and resolve their assurance problems. It
established a new set of legal rules to govern international bribery and a fairly minimal
institutional apparatus that promoted the cooperative transition and is currently
overseeing the implementation of the agreement.
In summary, our analysis deepens the understanding of how international cooperation
occurs by marrying an analysis of gradualism through legalized processes to the existing,
more structural theory of cooperation. The next section discusses how the structural bias
in international relations theory makes it hard to understand processes of change and
cooperation. We focus on liberal institutionalist theory which uses the “folk theorem” to
establish the possibility of cooperation and to provide insight on its institutional and other
requisites. But the folk theorem offers no explanation of how cooperation occurs.
Indeed, we argue that its best prediction is that cooperation will not occur. Therefore we
“invert” the folk theorem to emphasize the inter-related problems of bargaining and
distribution, uncertainty and Assurance that make cooperation problematic. The third
section discusses how gradualism helps actors overcome these difficulties and in
particular, why legalization often provides a “focal process” through which states pursue
cooperative possibilities. The fourth section of the paper offers a detailed empirical
examination of how cooperation failures in the preventing transnational bribery were
overcome by shifting to a gradual legal approach.
I. The Limits of Cooperation Theory
Although our analysis focuses on the limits of liberal institutional explanations of the
transition to cooperation, this shortcoming is connected to the structural bias of
international relations theory. Our fundamental critique is that cooperation theory is too
structural in focusing on how the prevailing configuration (including preferences,
capabilities, ideas and institutions) determines equilibrium outcomes without paying
attention to the processes by which particular equilibria are attained. Before turning to
our critique liberal cooperation theory, it is worth briefly mentioning that this general
limitation is shared by the other major international relations theoretical approaches.5
Neorealism takes pride in being a structural theory, partly because it is a theory of stasis
that sees anarchy as enduring. To be sure neorealism includes mechanisms of adjustment
such as warfare and alliance formation, but these are means of adjusting to a structurally
determined outcome resulting from exogenous changes in the distribution of capability.
5
This critique applies to systemically-oriented theories. A number of approaches ranging from
decision-making to crisis bargaining to recent analysis of transnational movements are attentive
to processes, although they typically aren’t well-connected to systemic theory. The challenge we
address is that of connecting structural and process theories.
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There is no sense of possibility whereby actors might choose alternative outcomes within
a given anarchic setting, but simply an argument that circumstances drive actors to a
particular outcome.
By contrast, constructivism strongly embraces the possibility of change -- anarchy, after
all, is what states make of it -- but it too has a structural side that severely limits change.
Although its view of outcomes as heavily shaped by ideas suggests a fluidity that is
amenable to change, ideas are not just enabling but also constraining. With respect to
collective outcomes, the distribution of ideas can be as significant a structural constraint
as is the distribution of capability or material interests. Moreover, many of the central
mechanisms invoked by constructivists — including habit, the logic of appropriateness
and socialization — are backward-looking; they therefore provide better explanations of
continuity than of change. Other mechanisms — including persuasion and deliberation
— are more amenable to explaining change but the literature remains at an early stage in
explaining how these work in international relations.
To address what we see as a shared problem in international relations theory, we draw
insights from both of these perspectives in studying the transition to cooperation. Realism
is valuable for its critique of cooperation and, especially, for its emphasis on the
Assurance problem that makes transition to cooperation difficult. Constructivism is
useful because of its emphasis on the possibility of change and the need to pay attention
to the processes and actors underlying structural theory. A special attraction of
examining legalization as a key process of cooperation is that legalization involves both
normative and rationalist elements and so builds on the complementarity of constructivist
and rationalist arguments. In this spirit, we move to a detailed analysis of the limits of
the liberal cooperation theory.
“Big Bang" Cooperation in the Folk Theorem
The folk theorem is the centerpiece game theoretic result underlying the contemporary
theory of international cooperation and institutions. It is actually a family of results
showing that any feasible cooperative outcome — that is, one that is technologically
possible and that benefits all parties over time — can be sustained as a decentralized
equilibrium provided the actors all care sufficiently about the future and have sufficiently
high-quality information about their circumstances.6 Its basic logic is that parties
conditionally cooperate with one another while being prepared to punish noncooperators
sufficiently to ensure that no one will be tempted to break out of the arrangement and free
ride on others’ cooperation. In terms of the familiar Prisoners’ Dilemma (PD) problem,
6 It is a folk theorem because the basic intuition has been long understood; it is a folk theorem
because it has been shown mathematically. The mathematics entail considerably more than
formalistic window-dressing and has opened up a much deeper understanding of the precise
conditions under which the arguments applies — and its limitations which we examine below.
The resulting family of folk theorems continues to grow as its application in specific
circumstances is refined. For example, Kandori (2002) examines the significant implications of
private versus public monitoring where the assumption of common information about actions
does not hold.
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for example, the folk theorem asserts that outcomes that are preferred by both parties to
the mutual noncooperation outcome often can be maintained through reciprocal strategies
such as “Tit for Tat” or “Grim Trigger.”
Figure 1 shows the single-play “stage” game of PD with its unique equilibrium outcome
at the {2, 2} payoff, which is suboptimal compared to the {3, 3} payoff. Figure 2 shows
the folk theorem result for the corresponding repeated PD game where any outcome in
the shaded area can be supported by decentralized enforcement when actors care
sufficiently about the future. Importantly, the theorem is not restricted to repeated
Prisoners’ Dilemma or to bilateral interactions. It applies to any circumstance where
actors can realize joint cooperative gains over time.7
___________________
Insert Figures 1, 2 Here
___________________
The folk theorem is a possibility theorem. It does not demonstrate that some high or even
moderate level of cooperation will necessarily occur, but only that it is feasible. Indeed,
noncooperation (e.g., repeated play of the {2, 2} Nash equilibrium of the stage game)
always remains a possible equilibrium outcome. Moreover, as a comparative statics
result, the folk theorem neither explains how a move to a superior cooperative
equilibrium might come about nor provides any clear justification for the common
implication that it will come about. As we argue below, in international relations, where
actors often begin from the noncooperative outcome implied by international anarchy, the
best prediction from the folk theorem alone is a probably that they will stay there.
The basic folk theorem logic extends to more difficult circumstances that correspond
more closely to those of international politics. Even if actors cannot fully monitor each
others’ behavior, for example, cooperation can be maintained through appropriate
modifications of actor strategies, as by ignoring small deviations but punishing large ones
severely (Downs and Rocke, 1995). Similarly, escape clauses enable trade treaties to
sustain cooperative outcomes by granting parties temporary flexibility to respond to
potentially disruptive shocks such as domestic crises (Milner and Rosendorff, 2001),
while monitoring institutions can improve the performance of security arrangements
when the motivations of other actors are unclear (Kydd, 2001). Such adaptations
demonstrate that more complicated arrangements can support decentralized cooperation
under more difficult circumstances, but they do not explain how such arrangements can
be implemented in practice. Indeed, these increasingly complicated remedies suggest the
inadequacy of the strictly decentralized cooperation embodied in the folk theorem.
7
The shaded area in Figure 2 represents average undiscounted payoffs in the repeated game.
Uncertainty or diminished concern for the future reduces the range of equilibria that can be
supported until, at some point, the possibility of supporting any cooperative outcomes is
eliminated. Finally, we do not address important issues such as subgame perfection or
renegotiation since our interest is not in the refinements that game theory is capable of but rather
in the gaps that it contains.
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Cooperation may need to be more institutionalized to address the actual conditions that
actors face in international relations, both to expand the range of feasible outcomes
(Koremenos, Lipson and Snidal, 2001) and to help states achieve them.
In sum, the folk theorem is a structural theory that describes the alternative possibilities
in a particular setting and suggests the arrangements needed to support them, but does not
directly address how actors can expand those possibilities or actually get to a cooperative
outcome. For our purposes, then, it is more fruitful to invert the folk theorem,
emphasizing its “limitations.” Here we identify a number of impediments to international
cooperation revealed by the theorem: problems of coordination, distribution and
bargaining posed by multiple equilibria, and several distinct problems of uncertainty. In
the following section, we consider how processes of cooperation allow actors to address
these impediments.
Multiple equilibria
One well-known problem illuminated by the Folk Theorem is that of multiple equilibria
— that is, a multitude of possible outcomes can be supported by decentralized strategies.
In Figure 2, for example, the shaded area offers an infinitude of equilibria, but the theory
offers no compelling analysis of how one particular equilibrium is selected or, especially,
how a “good” equilibrium might be attained. Economists sometimes assume that
outcomes will be restricted to efficient (Pareto optimal) points; but they provide no nontautologous warrant for an assertion that fails empirical scrutiny, at least in the domain of
international politics.8 Moreover, even the efficiency presumption leaves open all the
possible outcomes along the dark line in Figure 2 (the points on the Pareto frontier that
make both sides better off compared to the status quo ante). Additional criteria such as
“symmetry” or “fairness” might further narrow equilibrium selection in highly simplified
theoretical settings, but these offer little guidance in real world settings where symmetry
and fairness are neither well-defined nor necessarily compelling motivations to the actors.
More generally, the lessons of strictly formalistic attempts to determine “unique”
equilibria in strategic interactions — including both the Nash refinement program for
noncooperative games and the solution theory of cooperative games —indicate that more
precise and general predictions are unlikely to emerge from the game model alone.9
Rather than representing a shortcoming of the folk theorem, however, the presence of
multiple equilibria reveals a fundamental feature of the world and its politics. Without
multiple equilibria, there would be no politics, in the sense that outcomes would be
determined uniquely in terms of the technology of the problem and the interests, and
8
The efficiency view arises from the “market” presumption that if there are joint gains to be
made then actors will have an incentive to achieve them. This depends on having the appropriate
institutional and informational arrangements, which applies rarely in real economic problems and
less often in political ones. The efficiency view can be tautologously restored by treating
institutions and information as constraints and costs. Although that does not advance the analysis
per se, it may have some methodological purchase (Townsend 1988; Snidal 1996).
9
Schelling 1960. The theory of the core is probably the most compelling refinement program. In
special institutional circumstances such as the perfectly competitive market it produces a unique
equilibrium but, more generally, the core may contain a multitude of equilibria or none at all.
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beliefs of the actors. In such a world, there would be no role for cooperation because
change would be driven solely by shifts in exogenous factors.10 With multiple equilibria,
however, there is room for contestation (including leadership, bargaining, coalitionbuilding and persuasion) and cooperation (including learning and deliberation), and for
possibilities of contingency and path dependency, that fundamentally change the nature
of international politics. Movement from anarchy to cooperation, or from one level of
cooperation to another, becomes possible. While the folk theorem does not directly
address these processes, it indirectly reveals their significance.
a. Coordination. The selection of a particular equilibrium among many is usually
explained in terms of the existence of a focal point — a particularly salient outcome that
somehow commands the attention of the players so that they coordinate their actions
around it. However, there is no good theory of focal points within game models
(Morrow, 1994), and analysts need to beware focal points that are artificially induced by
the model itself. In Figure 1, for example, the symmetry of the game and the
specification of a single dichotomous choice for each party —and therefore of a unique
point of bilateral cooperation — make coordination on the {3, 3} payoff seem compelling
if the game is repeated. This is carried over into the folk theorem representation of
Figure 2, where the corresponding kink in the Pareto frontier might suggest a compelling
point of cooperation. However, this focal point is an artifact of the model and disappears
when actors have more continuous choices, as in most real-world problems, so that
“cooperation” is not uniquely defined and the problem is not strictly symmetric.
Although game theory ultimately may provide a more systematic understanding of focal
points, at present we must rely on empirical knowledge of particular settings, combined
with auxiliary theories of behavior, for guidance.11
An even greater challenge to cooperation is that, in many real international problems, the
most compelling focal point is the status quo, in which actors are not cooperating.
Whereas the folk theorem adopts an Archimedean perspective, identifying possible
equilibria from outside the game, most cooperation problems occur among actors who are
already coexisting at a bad equilibrium. Players in such a game already have had their
expectations formed by a history of noncooperation. Transition to cooperation thus
requires not only creating a new focal point, but also eliminating the noncooperative
status quo focal point in both its psychological and material manifestations. In this
respect, the folk theorem significantly understates the difficulty of cooperation, and
especially of moving to greater cooperation, where patterns of behavior are already set.
10
This world corresponds fairly closely to the Realist view of anarchy as tragedy, where states
play out a script determined by the distribution of power but cannot change the plot. The liberal
(and constructivist) critiques of realism begin with the observation that the anarchy script does
not rule out multiple equilibria (different possibilities) and therefore allows the actors to change
the plot by finding paths (of different kinds) to new equilibria. Here we argue that, although
cooperation theory has identified the possibility of different endings to the story, it provides an
inadequate account of the plotlines.
11
For empirical work in an experimental mode see Crawford (2002). For a discussion of
auxiliary theories see Ferejohn and ***. Myerson (1991) has an interesting discussion of the
difficulties of modeling these processes
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b. Distribution and Bargaining. Choosing among multiple equilibria further raises
issues of distribution and bargaining, which lie at the heart of politics. Actors who agree
on the desirability of getting to the Pareto frontier still have strongly opposed interests in
selecting a specific efficient point on the frontier (Krasner 1991). The resulting costs of
delay and bargaining also create inefficiencies. Indeed, Fearon (1998) makes the
compelling point that even as a lengthy shadow of the future enables decentralized
enforcement of cooperative outcomes, it simultaneously enhances ex ante incentives for
distributive bargaining that inhibit efficiency. Institutional solutions such as linkage
across issues (Mitchell and Keilbach, 2002) or periodic renegotiation of limited-duration
agreements (Koremenos, 2001) again may help reconcile these conflicting tendencies.
However, such considerations also suggest again that getting to cooperation will entail
intermediate steps of bargaining and institutionalization that the folk theorem does not
address.
The problem of choosing among equilibria may be more severe when large
numbers of states are involved. The collective action problem means that even if there
are joint gains to cooperation, there will incentives to free ride in the hope that others will
bear the costs of organizing cooperative arrangements. Conversely, whatever the
decisional mechanism for agreement, actors will have incentives to make strategic
proposals that create decisional cycles, which make reaching agreement all that more
difficult. Such difficulties suggest an important role for entrepreneurship and leadership
in guiding states towards an agreeable cooperative outcome.
Uncertainty Problems
Bargaining problems also point towards the strong assumptions about information (e.g.,
what the actors must know about their interaction and about each other) that underlie the
application of the folk theorem. While the theorem can be adapted to accommodate
various types of uncertainty, such considerations nevertheless impair the effectiveness of
decentralized cooperation and pose additional impediments to moving to higher levels of
cooperation.12
a. First, actors may have technological uncertainty because they do not know
enough about the state of the world and therefore about the full consequences of the
actions proposed. Indeed, actors may not understand the problem well enough to identify
all the actions that are possible. In these circumstances, even if all the parties see some
level of cooperation as beneficial, they may be unsure how far they can or wish to go in
the cooperative direction. In terms of Figure 2, there is uncertainty as to the location and
shape of the Pareto frontier. This complication can be accommodated formally by using
expected values in the folk theorem -- provided that the probability distribution of
possible outcomes for each combination of actions is known (Fudenberg and Maskin
12
Koremenos, Lipson and Snidal (2001) discuss how different types of uncertainty — over
behavior, over preferences and over the state of the world — impair cooperation and how these
can be overcome by appropriate institutional design. Their focus is on how uncertainty impairs
the operation of agreements whereas we focus here on the related but different issue of how
uncertainty inhibits actors from getting to agreements.
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1986).13 But this approach is problematic for complex problems such as global warming
or issues involving technological change. In these cases, uncertainty cannot be reduced
to “risk” since actors cannot specify all the possible actions and their consequences, let
alone their probability distribution.14 This obviously makes selecting an equilibrium very
difficult. Moreover, such situations will be heavily contested politically because
ambiguity aggravates the impact of risk-aversion.15 Actors will raise the specter of “worst
case” scenarios (on either side of the issue) as a bargaining tactic, blurring the situation
further.
b. Second, preference uncertainty arises when actors are unsure of others’
incentives and/or capacities.16 Even if other states appear to support moves to more
cooperative equilibria, they may not be sincere, may not want to cooperate to the same
extent, or may be unable to cooperate. Actors with a low value for cooperation or with a
weak capacity (political or technological) to implement cooperative agreements might
nevertheless agree to a proposal for a high level of cooperation because it would offer
them an opportunity to free ride. Alternatively, actors with a high value for cooperation
might feign disinterest for reasons of bargaining. This type of uncertainty makes
selecting an efficient equilibrium extremely difficult. It is especially significant for
applications of the folk theorem to international relations, since states are not truly
unitary actors as typically assumed. Instead, a state’s “preferences” and capacities are
subject to the interplay and uncertainties of domestic politics, where supporters and
opponents of a proposed policy contest its acceptance and implementation in ways that
often are not transparent to other states.
A related type of uncertainty occurs when actors are unsure of their own preferences and
capacities, especially for new and unfamiliar problems. This type of uncertainty is
typically ruled out in rational models with unitary actors, although introspection suggests
that it may be significant, at least for fundamentally new problems like cloning.17
13
Alternatively, the probability distribution can be over different types of actors whose costs and
benefits are known. A state’s uncertainty about its own preferences could even be represented
this way where the different types correspond to (say) the types of electorate it is likely to face in
the next election. These cases correspond to different types of uncertainty discussed below. Note
that while the cases are formally similar, they differ sharply in terms of their substantive
interpretation and possible institutional remedies.
14
One way to analyze this problem within the standard framework is to specify it as a prior game
where actors decide how much search effort to expend to reduce this uncertainty. The difficulty
with this approach is that this prior game is itself difficult to specify — how much effort does it
take to discover what we don’t know is even there? — and effectively asks the actors to solve a
more difficult problem than the first one which they already cannot solve. For efforts to analyze
problems of “bounded rationality” in game frameworks see Fudenberg and Levine (1998).
15
Strictly speaking, this is not risk aversion in the economist’s sense since, as noted above, the
problem cannot be specified in terms of probability distributions. An emerging literature has
begun to analyze this problem in terms of “ambiguity-aversion.” See Ellsberg (1963) and ***.
16
Watson (1999).
17
This is especially true if we allow the possibility of preference change or are considering
preferences over new things. For example, if I don’t know if like a new food is it because I don’t
know what it tastes like or, never having tasted it, I don’t know my taste for it? Especially if
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Regardless, uncertainty about one’s own preferences is of central importance when the
principal actors, like states, are composites whose “preferences” are complex
aggregations of the interests and values of underlying actors, and which can often
implement agreements only by coordinating the responses of domestic actors. In
principle, it may be desirable to handle this problem theoretically by modeling the
underlying actors directly — unfortunately, this requires a theory of domestic politics and
action. In practice, therefore, it may be more promising to analyze the problem
empirically in terms of aggregate actors partially engaged in discovering their preferences
and capacities (i.e., their domestic political constraints) through the process of
cooperation. When leaders do not know how an international policy will play
domestically, they take this uncertainty into account in negotiating and constructing
agreements.18
The uncertainties discussed above may operate somewhat differently when actors are
already in equilibrium. They feel no pressure to change their behavior (by definition) and
know that others feel no such pressure. Moreover, experience at equilibrium offers no
way to learn about alternative outcomes, about others’ preferences for change, or about
their own preference for change. Finally, insofar as equilibrium implies a certain type of
contentment, it is not conducive to promoting learning that a superior equilibrium exists
and pushing states to adopt the necessary changes. Uncertainty blends into ignorance.
c. The third and greatest challenge to the application of the folk theorem arises
from uncertainty over which equilibrium has been chosen and thus what actions everyone
will (and therefore should) take. A shared “common conjecture” about how everyone will
behave is necessary to support the realization of an equilibrium. Even when there is a
unique efficient equilibrium, it may be difficult to develop the necessary expectations to
ensure that it will come about. The most famous example is the Assurance Problem (or
Stag Hunt or Security Dilemma game) where cooperation is not guaranteed even with
communication among the players. Even a small amount of doubt as to whether the
others will cooperate will lead one not to cooperate; the possibility that one may hold
such doubt makes the others’ noncooperation reasonable; and so forth. The result is that
everyone chooses not to cooperate because of the difficulty in sustaining the expectations
necessary to support an outcome that all recognize as superior. (The small level of doubt
necessary to upset this conjecture is very plausible given the other uncertainties discussed
earlier.) Preplay communication cannot readily resolve these doubts because actors
always have an incentive to say they will cooperate even when they intend to defect or
lack the capacity to cooperate. So arriving at a common conjecture to support an
equilibrium is difficult even when the “best” equilibrium is “obvious.”
tastes relevant to new issues have to be acquired or discovered, at some point they must be
unknown. Thus policy debates over issues like cloning and ozone depletion involve not only
differences among preferences but also deliberations over what should be our preferences.
Finally, if the equilibrium chosen shapes preferences, then choosing equilibria is not separate
from choosing tastes over time.
18
A variation of this is that leaders may be forming domestic preferences – as when their
policies help define other states as enemies or friends.
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The more general and difficult question concerns the source of the common conjecture in
the first place. Only in special cases can it emerge solely from the game itself, as when a
game is dominance solvable (by iterated deletion of dominated strategies), and even these
cases are subject to challenge. For example, dominance solvability becomes less
compelling (both theoretically and empirically) as more rounds of iteration are required,
because of the onerous requirements it puts on the actors. Similarly, a common
conjecture on a single efficient equilibrium is problematic when risk and efficiency
considerations point in different directions (as in Assurance). Of course, when interests
are identical or highly correlated, a minimal process of pregame communication (cheap
talk) may suffice to establish a common conjecture. But the folk theorem suggests that
there will often be a wide range of equilibria that create distributional differences and
assurance problems. In this more general case, although every outcome can be supported
by some set of beliefs, there are not purely theoretical grounds to suggest that actors will
be able to arrive at a common conjecture that support any particular equilibrium.
The alternative source for a common conjecture is empirical in terms of a focal point.
Here the obvious candidate must come from the history of prior play which, if we are
analyzing a cooperation problem, must correspond to the ex ante point of noncooperation.
This provides a powerful and long-standing common conjecture that is difficult to
surmount. Moreover, their lack of experience in cooperating on the issue makes it less
likely that a natural cooperative focal point will be obvious to the actors. Thus on neither
theoretical nor empirical grounds can the folk theorem provide an adequate account of
getting to cooperation.
In short, the folk theorem tells us which cooperative outcomes are possible, but it tells us
nothing about how cooperation comes about. Indeed, when actors are not cooperating, the
folk theorem probably predicts more of the same. In short, although it is fundamentally
about the importance of play over time in promoting cooperation, the theorem does not
address how actors can change equilibria within the model.19 Instead, the standard use of
the folk theorem is as a big bang theory of cooperation, in which cooperation is predicted
to emerge from nowhere and (hopefully) to settle on some attractive equilibrium on or
near the Pareto frontier. Where there is a pre-existing equilibrium, the equivalent big
bang prediction of direct movement from the status quo to a new, superior equilibrium is
especially unpersuasive. The possibility of cooperation is assumed to result in its
realization — without any explanation of how cooperation comes about, how a single
19
To be sure, a particular supergame equilibrium may include alternation between different
outcomes in the stage game but this is not the same as a change in the supergame equilibrium.
Evolutionary approaches (e.g., Axelrod 1984; Kandori et. al. 1993; Young, 1998) do provide an
account of change over time as the frequency of different types of actors changes – because actors
who follow certain strategies become less numerous, perhaps by learning about better ways to
play the game. This would predict some forms of gradualism (e.g., where successive states
adhere to big bang agreements) but not other types of gradualism considered below. Moreover,
we argue that this type of selection mechanism, even when interpreted more broadly as
“learning,” does not offer an accurate general account of the dynamics of international
gradualism.
11
Folk Theorem
Abbott & Snidal
equilibrium is selected and a common conjecture created, and without any account of the
actual history of the process.
The inadequacy of a big bang theory of cooperation is reflected in the actual experience
of international relations, where cooperative arrangements usually emerge in a series of
steps.20 The WTO has developed through a series of complex negotiating rounds over the
past fifty years, as has the European Union over forty; Law of the Sea Conferences have
been multiple and protracted. Major international agreements are often reached through
extensive series of technical meetings, negotiating sessions and diplomatic conferences.
International organizations such as the UN specialized agencies provide on-going sites
and agencies for developing cooperative arrangements. In other cases, negotiations are as
much tacit as explicit – as in the Cold War combination of détente and SALT talks – as
the parties move over time toward a mutually preferred outcome.
In order to apply the power of the folk theorem to real problems, the theorem must be
augmented by an analysis of the process through which actors reach cooperative
outcomes. Such an account should help us understand how actors select among the many
available equilibria, solve their bargaining problems, reduce various forms of uncertainty
and overcome the Assurance problem by developing an appropriately effective common
conjecture. In the next section we begin to develop such an account in terms of an
informal theory of international legalization as a “focal process” that allows states to
gradually overcome the impediments to cooperation identified by the folk theorem.21
II. Gradualism and Legalization as Processes of Cooperation
From Focal Point to Focal Process
Actors who face a multitude of possible outcomes, yet know neither the full range of
possibilities nor even their interests in detail will face serious difficulties in selecting a
focal point around which to establish an equilibrium. In this circumstance, it may be more
effective to agree on a procedure for determining a focal point. Such a focal process
allows actors to discover the feasible outcomes, evaluate these alternatives, bargain over
them and, ultimately, find or create a focal outcome. In domestic society, a wide variety
of focal processes — including collective bargaining, arbitration, legislation,
administrative regulation and litigation — determine outcomes. In international relations,
the rules and practices of diplomacy have historically provided general procedures for
20
Not all international agreements are gradual. Agreements about problems that are wellunderstood, relatively uncontested and relatively small scale might be expected to be “big bang.”
Moreover, crises surrounding major breakdown in the international system (and therefore destroy
preexisting focal points) may also promote big bang agreements. Examples might include
Westphalia, Congress of Vienna, League of Nations, and the United Nations. We postpone the
question of when we will get “big bangs” versus gradualism until we have a better understanding
of the advantages of gradualism.
21
See Roger Myerson Game Theory pp. 372-4 for a discussion of a related concept of focal
negotiation, noting that “developing a formal model of focal negotiation seems to be a very
difficult problem.”
12
Folk Theorem
Abbott & Snidal
negotiations, and these remain an important part of the infrastructure international
agreement. More recently, the negotiation of legally binding treaties or the creation of
some variety of “soft law,” have emerged as the principal ways of pursuing international
cooperation. International organizations have also become accepted forums for pursuing
mutual interests in many (but not all) substantive issue areas.
An important aspect of focal processes is that they create opportunities for the emergence
of leadership in organizing a group to move toward a better equilibrium. Individual
states often serve as “lead” states on an issue where they have a special stake and seek to
promote a transition to a better equilibrium. Other states will welcome this leadership
insofar as it promises to benefit them but they also will be wary of leadership that may be
more self-serving than in the common interest. The formal rules and informal norms of
procedure provide ways to both enable and constrain the exercise of leadership.
Leadership can also be created through delegation to a third party, such as an arbitrator or
expert group that is empowered to propose or even determine a solution. International
organizations are sometimes used in this way. Delegation is especially compelling when
the third party has an informational advantage — or can develop one — that allows it to
select a superior outcome for the parties. But acceptance of a third party also depends on
its being seen as neutral and independent.22 Because nation states are reluctant to delegate
significant authority — especially in highly uncertain circumstances or where they worry
that IOs will unduly expand their institutional power —states usually participate fairly
directly in focal processes at the international level. Typically, states further protect their
interests by reserving the right to not ratify agreements or to opt out of rules and
decisions (in contrast to binding domestic procedures like legislation, regulation and
adjudication). Nevertheless, some limited delegation to institutions and experts usually
serves to make information collection and bargaining more efficient.
Civil society groups have recently provided leadership on issues like human rights and
land mines, while business NGOs have long played an influential role in areas of
economic regulation. Since their own resources are limited, civil society efforts often
concentrate on pressuring and persuading IOs and states to take up their causes in
international forums. While states have been wary of many of the newer civil society
actors, they sometimes welcome the significant expertise that NGOs bring to bear on
problems. This can be valuable in promoting cooperation and some international
procedures have been adapted to provide an entry for NGO efforts.
Agreement establishing a new equilibrium is usually not reached in a single step, but
rather develops through a series of smaller agreements. Legalization often provides a
22
Flipping a fair coin or “splitting the difference” are examples of mechanisms for selecting a
focal point when parties know the best outcomes but need an independent and neutral device for
choosing among their differing preferences. In the cases of prime interest here, however, the
problem of equilibrium selection is complicated by a prior informational deficit regarding what
are the best outcomes. Sometimes the resolution of the informational deficit biases the selection
process — as is sometimes alleged by the South when Northern experts propose solutions to
problems of trade or environment. For a discussion of the importance of neutrality and
independence for international organizations see Abbott and Snidal (1998).
13
Folk Theorem
Abbott & Snidal
useful way to organize such moves towards cooperation. The legalized arrangements
known as framework conventions are designed to initiate a series of separate substantive
protocols en route to a final outcome, often with states allowed a range of à la carte
choices along the way. Similarly, the intent of many soft law arrangements is that the
parties will gradually tighten the precision and legally binding character of the
undertakings over time, perhaps adding substantive content as well (Abbott and Snidal
2001).
Before examining how legalization operates as a focal process, we discuss the general
advantages of gradualism as a way to develop international cooperation. We focus on the
ways gradual approaches help overcome the impediments to cooperation identified
through the folk theorem.
The Advantages of Gradualism
Gradualism is the division of a problem into smaller steps that can be acted upon
separately over time and ordered in such a way as to facilitate cooperation. Gradualism
refers to breaking cooperation into steps, not necessarily to the speed at which
cooperative outcomes are attained. Gradualism surely will be slower than “big bang”
cooperation when the latter is viable. But gradual processes vary widely in speed and
duration. And even a lengthy gradual process that succeeds is a faster route to
cooperation than a big bang approach that fails. Figure 3 depicts stylized gradual process
towards a cooperative outcome.
________________
Insert Figure3 Here
________________
In a gradual process, steps that are known to have high benefits and low costs can be
sequenced first —increasing the immediate incentives to cooperate. This logic is not
restricted to material considerations; normatively desirable and uncontroversial steps also
can be taken first. Similarly, steps that pose less risk (including distributive uncertainty)
can be sequenced before those that pose greater risks (including delegation to
international institutions). Membership can also be sequenced. States that will derive the
greatest benefit and can be relied on to participate and comply with the agreement can be
included first. States that do not see the benefits of cooperation can be excluded initially,
while states that lack the capacity to cooperate can be granted an affiliated status and
given technical assistance to prepare them for full membership later.
Of course, both the separation and the ordering of steps and members are subject to
technological and political constraints. Some steps cannot be separated or taken in any
sequence. Some affected parties cannot be isolated from the group, as with public goods
and externalities. Finally, political considerations make it hard to put some steps ahead
of others, while preexisting institutions may determine the membership groups available
for addressing specific problems.
14
Folk Theorem
Abbott & Snidal
Gradualism also replaces the uncertainty of a “leap in the dark” with opportunities for
learning through successive small steps. This learning can address the various forms of
uncertainty that undermine cooperation in the folk theorem. It can reduce technological
uncertainty about the issue, uncertainty about the preferences and capacities of others,
and uncertainty about oneself (including one’s domestic politics) that make it difficult to
know the set of cooperative possibilities. Deliberation and persuasion in the course of a
focal process also facilitate normative learning, important where accepted values and
beliefs must be rethought in the light of emerging problems or information. Furthermore,
the focal process provides a means to develop the common expectations necessary to
support a cooperative equilibrium. All these effects contribute to a mitigation of the
Assurance problem.
A key advantage of taking easier steps first is that it enables learning processes that
facilitate subsequent cooperation on more difficult steps — and may also identify steps
that are too costly or not desirable. By providing valuable information on the likely
benefits and costs of future steps, first steps reduce technological uncertainty. Early steps
also can be chosen because they provide the most information. Often, initial steps are not
substantive undertakings at all, but simply procedures for gathering, sharing and
enhancing the reliability of information. Agreements frequently include procedures to
evaluate the impact of early steps in order to improve understanding of possible future
steps. And potential members may be convinced to join the effort as they observe the
benefits of cooperation realized by the initiating group and learn about the technical
aspects of implementing an agreement.23
Early steps provide a means to determine whether other states can be counted on to
cooperate and to facilitate confidence-building through transparency and interaction
among governmental and societal actors. Cooperation on first steps makes commitments
to cooperate on future steps more believable; states that are unwilling or unable to
cooperate on easy steps can be excluded (or at least not counted on) for further steps.
Moreover, political reactions to early steps inside other states — especially the intensity
of preferences and interplay of domestic supporters and opponents — provide valuable
information regarding their political ability to carry through on subsequent steps.
Revelation of domestic political configurations in other states also enables transgovernmental and trans-societal strategies to rally supporters and respond to the
objections of opponents there, with the aim of modifying national preferences.24 States
whose capacity or interest in cooperation is initially in doubt can demonstrate their ability
and sincerity through participating in early steps.
23
States may also learn that cooperation is a bad idea — in which case small steps provide a
cheap lesson. Although we focus on the case where cooperation is beneficial, learning when not
to cooperate is equally valuable.
24
Of course, the same is true for opponents. Our use of the term "cooperation" implies that some
alternative is socially preferred "on net." One justification for this is that of efficiency
maximization (Becker, 1975) whereby the gainers are able to outweigh or compensate the losers
on the issue. A different (but not opposed) justification is that one normative position is more
compelling than another.
15
Folk Theorem
Abbott & Snidal
Gradual cooperation also provides an opportunity for actors to learn and even modify
their own preferences. States can gauge domestic reactions to small initial steps with less
political risk than from larger steps. These early stages of cooperation further provide an
opportunity to mobilize domestic coalitions in favor of further steps, to assuage potential
resistors or encourage them gradually to adjust their investments and activities in the
desired direction, and to enhance domestic capacities to implement cooperative measures.
Insofar as initial steps cause domestic opponents to change their behavior and invest in
new practices — for example, as firms become more export-oriented or adopt
international codes of conduct — these groups may even become supporters of further
cooperation. Normative learning can be an important aspect of this process, as domestic
actors are mobilized around values such as human rights or biological diversity that they
had not previously taken into account.
As these examples make clear, the potential for learning in gradualism goes beyond
simply resolving uncertainty about existing technologies and preferences to the
possibility of changing them, or finding the “right” technologies and preferences. In
terms of technology, early stages of international processes are often oriented towards
discovering the nature of a problem (e.g., Is there global warming and what will be its
consequences?) and developing feasible solutions (e.g., Will tradable emission rights help
address the problem?), especially in technical areas like environmental regulation. In
terms of preferences, early stages of cooperation are typically oriented towards
reconciling divergent preferences, often as governments and societal actors try to
persuade others, at home and abroad, of the importance of certain collective goals. Arms
control, trade liberalization, human rights and environmental protection are all areas
where much of the work of international negotiations has occurred at this prior level of
deliberation, aimed at understanding problems and technologies and accepting common
goals. Indeed, cooperation cannot proceed until states agree to some extent on the nature
of the problem and on what constitutes desirable or appropriate behavior.
The most important learning that occurs through a gradual process is with respect to the
evolving “focal point” for cooperation. Each step in the process potentially serves as an
interim focal point for action. As states see each other abiding by successive gradual
steps, the process itself becomes focal, generating common expectations for the behavior
of participating states. Public acceptance of agreement terms, together with actions and
pronouncements in associated forums and investments around successive steps by
governments and private actors, serve as hostages that reinforce each step and allow
states to update their expectations in a coordinated fashion as cooperation proceeds.
Insofar as the process and the intermediate agreements are seen as legitimate, these
expectations will be reinforced by the normative expectation that states should implement
an equilibrium to which they have agreed. These intermediate agreements also narrow
down the set of acceptable ultimate agreements as states move along the path to
cooperation (Figure 3).
Equally important, a successful gradual process progressively diminishes the original
noncooperative status quo as a compelling focal point. By demonstrating cooperation at
even a low level, states diminish expectations that the outcome must revert back to the
noncooperation point. Even if states are unable to proceed forward, none has an
incentive to go back. This potentially produces a “ratchet” effect, where each successive
16
Folk Theorem
Abbott & Snidal
level of cooperation provides a mutually agreeable focal point for an equilibrium that is
stable against downward moves while remaining open to further upward gains Although
limited or incomplete, each step can be structured substantively and institutionally to
function as a cooperation equilibrium, recognizing that the dynamic process may be
halted at any time. Downward stability is enhanced by the investments and pledges of
reputation that actors make around the agreement, while upward mobility is enhanced by
institutional arrangements developed as part of the focal process.
Gradualism is no panacea. Groups that oppose cooperation will use gradualism as a way
to organize opposition and to put off taking substantive action by substituting talk and
study for concrete steps. Even if opposition is not a problem, distributive problems
remain and bargaining will be intense. In selecting a focal process and in evaluating each
of the steps it produces, states and other concerned actors will be attentive to how even
early steps establish an overall direction to the negotiations and narrow the set of
potential ultimate equilibria. Thus the choice of a focal process will not be neutral but
contested — as indicated by past differences over locating specific issues in UNCTAD
versus GATT or in WIPO versus WTO. However, because the process can be sequenced
so that early steps emphasize efficiency gains over distributive issues, gradualism has
important advantages.
Most importantly, the combination of gradual, ordered steps with learning, confidencebuilding and adjustment significantly ameliorates the Assurance problem. Small steps
mean that states risk no major catastrophe should others fail to cooperate in the early
stages. Moreover, if a step turns out to be unfavorable to one or more parties, adjusting
the terms of cooperation in subsequent steps can provide a remedy. The normative
attractiveness and/or favorable benefit/cost ratio of initial steps further increase the
incentives to cooperate (and decrease the incentives to cheat) at the early stages where
states have their greatest doubts. The more difficult and riskier stages of cooperation are
postponed until they can be supported by the confidence established through successful
experience in cooperation. Above all, success in the early stages of cooperation  and
the investments that states and domestic actors make around the process and in learning
about its benefits  increase mutual confidence that others are truly engaged in the
cooperative process and will abide by the evolving terms of agreement.
Legalization as a Focal Process
Legalization is only one category of focal process, but it has properties that make it a
mainstay of international cooperation. First, legalization is easily adaptable to a strategy
of gradualism. Legal and quasi-legal arrangements are composed of distinct (though
interrelated) elements: the nature and force of the obligations imposed; the precision of
those obligations; and the delegation of authority to interpret, apply and supplement
them. Thus actors can determine at the outset whether to seek a “big bang,” moving
directly to commitments that are highly legalized as well as substantively deep and
17
Folk Theorem
Abbott & Snidal
widely accepted, or to separate the elements of legalization and develop them in stages
over time. 25
If the choice is made to proceed in steps, actors can order the elements of legalization,
choosing which to adopt at the outset and which to add or strengthen subsequently. For
example, if the actors choose to begin with a framework convention, they accept binding
legal obligations but limited substantive commitments; they may take on additional
commitments in later protocols. In a soft law approach, in contrast, the actors may begin
with fairly detailed normative commitments but no legal obligation; they may then
strengthen their obligation over time, as by adopting a treaty to replace a soft declaration
(Abbott & Snidal 2002). Because such choices are generally available, proponents and
opponents of cooperation actively assess the individual elements of legalization and
debate the order and rate at which to create them.
Second, legalization helps ensure that new arrangements will mesh with prevailing norms
and institutions. International law is the standard format and language for serious
international commitments, and is thus often the ultimate objective for successful efforts
at cooperation (see Abbott et al., 2001; Abbott & Snidal, 2001). A legalized process
provides an effective way to move toward such an endpoint. In turn, the likelihood of a
legal outcome shapes the process of legalization. Scholars have identified a variety of
characteristics that determine whether rules and norms are regarded as legitimate and
deserving of obedience (Fuller, 1964; Franck, 1990). Successful legalization will build
these traits in as the process proceeds.
Both interim and final equilibria will be more successful if they are integrated with
surrounding norms, agreements and institutions. Legalization facilitates this kind of fit.
Similarly, agreements and other actions can be found to have legal effects under the
general international system even if they were not thought to be legally binding when
adopted. For example, normative declarations can contribute to the emergence of
customary law and serve as the basis for authoritative decisions by courts and other
institutions. Legalization allows actors to anticipate and prepare for such possibilities.
International agreements must also mesh with national legal systems. Most international
undertakings require internal implementation by states to be effective. In some cases,
national legal rules constitute the problem that international cooperation is designed to
address. In other cases, domestic institutions may base authoritative decisions on
international instruments. And opponents of international cooperation frequently cite
domestic legal issues as reasons not to act. A legalized process helps produce agreements,
both interim and final, that respond to these demands. The need to mesh with domestic
25
It is important to note that all cooperative processes are in some sense “legal,” because all take
place within a general international legal system that, for example, recognizes certain actors as
legitimate participants, sets fundamental rules regarding diplomacy and the nature of international
agreements, and provides other important background rules, such as the obligation to settle
disputes by peaceful means and the rule of pacta sunt servanda, states must observe their
agreements. In addition, international law shapes the constitutions of international organizations
that serve as forums for negotiation and the centers of gravity of international regimes.
18
Folk Theorem
Abbott & Snidal
legal systems also shapes the process of legalization: actors must study the diverse
requirements of national systems and prepare agreements that accommodate them.
Third, legalization has practical benefits as a gradual strategy. Legalization offers an
established and generally applicable set of procedures that reduces the transactions costs
of negotiation, quite apart from the advantages of a legal agreement. Legalization
connects specific negotiations to broader institutional arrangements, and offers general
ways to handle classes of problems. Although imperfect in this regard, legalization offers
a relatively neutral set of arrangements for striking international bargains. At the same
time, legalization is highly flexible, easily adapted to particular issues — as in the design
of soft law processes. These advantages are amplified when the process is conducted in
an established institutional framework, such as an international organization.
Fourth, legalization facilitates the kinds of learning that are among the main advantages
of a gradualist strategy. Because legal undertakings – and to a lesser extent soft
arrangements that may lead to legal undertakings – require states to stake their general
reputations as law-respecting actors in international society, legalization provides an
effective screening device to reveal whether others are sincere about cooperation. Since
international law is the accepted language for significant commitments, refusing to use
that language, or at least quasi-legal normative language, suggests powerfully that one
cannot be counted on for cooperation.
Gradual legalization also helps states reveal and shape their own preferences. Processes
of norm development can be highly effective at activating supporters and opponents of
cooperation. Governments can mobilize latent supporters in the general public around
soft undertakings without incurring the political risks of firm commitments. Soft
undertakings also signal to domestic opponents the likely direction of policy
development, enabling them to adjust to the new reality over time, at a lower cost.
Normative deliberation and the development of legal rules also help participants learn
about the evolving focal point for cooperation and form a common conjecture.
Finally, legalization helps support the gradual “ratcheting-up” of cooperation. The
normative power of legal and quasi-legal commitments, their link to the broader legal
system and the pledges of reputation they entail all help even interim agreements
influence behavior in desired directions. The same characteristics, plus the ability of
supporters to invoke even quasi-legal commitments politically as standards of behavior,
provide stability against backsliding. At the same time, by reducing transactions costs,
legalization facilitates further movement toward enhanced cooperation.
To be effective in addressing a particular issue, of course, the process of legalization must
be more tightly specified. This is often done through the choice of a forum (e.g., WTO
vs. ILO) and a procedure within that forum (e.g., treaty negotiation vs. conference
declaration), and through prior agreement on the scope and objectives of the negotiation.
Ideally a legal process should be matched to the nature of the issue and the actors
involved. For example, an IO whose members share an interest in and capacity for
cooperation on an issue will be a more effective forum than one whose membership
includes strong opponents or likely laggards. Similarly, the process should be matched to
the expertise and competencies of the forum. Some IO’s may excel at certain types of
19
Folk Theorem
Abbott & Snidal
information production, while others may offer a superior setting for bargaining or
normative deliberation. An IO might even be “too competent” in certain respects, making
states reluctant to initiate a cooperative process for fear of being prematurely enmeshed,
or out of concern that their need to move slowly will undermine the organization (Abbott
& Snidal, 2002).
But the choice and specification of a process is not politically neutral. This is well
illustrated by the tendency of states and other actors to engage in “forum-shopping,”
seeking venues likely to produce desired outcomes. The choice among forums and
processes is likely to be contested, with the equilibrium selection problem reproduced as
an institutional selection problem.26 This problem will be simplified to the extent that the
menu of institutions and procedures capable of handling a problem is limited to a few
alternatives. More importantly, the problem may be attenuated insofar as the available
procedures limit the distributive range of potential outcomes. Gradualism helps to
accomplish this goal, as it allows actors to ensure that their interests and values are being
adequately accommodated before fully committing to an agreement.
In summary, the folk theorem shows that cooperation in international affairs may be
supported by the decentralized enforcement but says little about how we get to a new
cooperative equilibrium. Actual movement towards cooperation often require a gradual
process to addresses various factors that limit the applicability of the folk theorem.
Gradualism allows states to pursue cooperation in steps that make it easier and that
engage various types of learning — about the problem, about each other, about
themselves and about their joint cooperative equilibrium — that are essential to resolve
the Assurance problem. Finally, legalization has a set of properties that make it an
effective focal process and may explain why it is so widely used in international affairs.
The next section examines how a legal focal process works in practice.
II. The OECD Anti-Bribery Convention: Gradual Legalization as a Focal Process
In 1977, responding to revelations of foreign payoffs and corporate slush funds, the US
enacted the Foreign Corrupt Practices Act (FCPA), making it a crime for US firms to
bribe foreign government officials in order to obtain business. No other government
followed suit. The US sought international agreement on foreign bribery rules bilaterally
and in the UN and OECD, but these efforts came to naught. A decade later the US was
again rebuffed at the OECD.
In the early 1990s, however, the US succeeded in initiating a process of gradual
cooperation in the OECD. Led by political entrepreneurs in government, the OECD and
civil society, this process led member governments, over several years, to accept a series
26
See Riker (1980) for a discussion of how preferences over institutions depend on preferences
over the outcomes that they are expected to generate. This builds off the structure induced
equilibrium literature, which shows how institutional arrangements determine outcomes where
(voting) cycles might otherwise occur. Although we do not consider the problem of cycles here,
our underlying logic of institutional rules is similar with respect to the narrowing down of the
available outcomes found through the folk theorem.
20
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of increasingly broad, substantive and detailed undertakings on bribery in the form of
non-legally-binding Recommendations. In December 1997, the process culminated in the
legally binding Anti-Bribery Convention requiring member governments to adopt
domestic legislation making it illegal for their multinational firms to bribe foreign public
officials. It further created an oversight arrangement through an OECD Working Group
to scrutinize proposed domestic legislation and monitor its implementation and
effectiveness.
This section of the paper explores the empirical puzzle of why the US was unable to
promote a cooperative agreement in earlier efforts but then was fully successful in the
OECD?27 We show how the use of gradualism through a legalized OECD process
enabled states to reach a cooperative outcome through a series of steps over a relatively
short time period. The section begins by outlining the political structure of the issue and
then presents the OECD process chronologically, analyzing each stage in light of the
theory of process presented earlier.
The method of this section is similar to that of the “analytic narrative” (Bates et. al, 1998)
which can itself be viewed as a theoretically refined version of process tracing (George).
Analytic narratives use a systematic deductive structure — in this case rational
cooperation theory — as a guide to interpreting and understanding historical
chronologies.28 Such narratives do not provide tight tests of the theory but rather use the
theory to constrain the allowable interpretations of the case. Here we take the approach
one step further by using the empirical account to illuminate the deficiencies of purely
structural theories of cooperation, as outlined in our account of the limitations of the folk
theorem. Thus our joint purpose is to understand how states achieved international
cooperation to combat transnational bribery and, more generally, to illuminate how
attention to legal and other processes can improve our theoretical understanding of the
transition to cooperation.
Structure of the Issue
The cooperation problem in international bribery can be viewed first from the perspective
of multinational firms competing for a contract to be decided by a foreign government
official who can be bribed. This has been a common situation for large construction and
aeronautical contracts, especially in the developing world. It places firms in a Prisoners’
Dilemma situation where each has an incentive to pay a bribe to be considered for the
contract, but all would be better off if all refrained (or were prevented) from bribing. The
home states of these firms are in a similar PD relation since if they unilaterally restricting
bribery will lead to a loss of exports and home country jobs, but states would be
collectively better off with effective international limitations. Unfortunately, the inherent
27
Our analysis is based primarily on interviews with twenty-eight of the key participants in the
development of the OECD Convention and related international arrangements, as well as archival
files and secondary sources. The interviews are listed in Abbott and Snidal 2002b.
28
Snidal (2002) offers a brief discussion of the application of analytic narratives to international
relations.
21
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Abbott & Snidal
secrecy of bribery makes it very difficult not only to monitor cooperation but even to
recognize or acknowledge the problem in the first case.
States have broader concerns than firms for two additional reasons. First, their incentives
for cooperation are enhanced insofar as they care about the adverse consequences of
endemic bribery on economic development and democracy in other states — and
therefore on the effectiveness of foreign aid and international development programs that
they support. Second, if states (or their broader selectorates) believe bribery to be
morally inappropriate behavior, then they may oppose it regardless of its direct material
consequences. These latter considerations can be seen either in terms of increasing
incentives to cooperate or in terms of changing the way that states think about the
problem.29 Regardless of the perspective adapted, changing understandings of corruption
and its consequences will play a major role in the ability and willingness of states to
address the issue.
The Big Bang Approach Fails: pre-1977 to 1990
Pre-1977: The Issue Emerges
Although corruption is now widely understood to be “bad” and preventing transnational
bribery has been recognized as an important problem of international cooperation, which
was not always the case. Until surprisingly recently, corruption was viewed as
essentially benign by both practitioners and scholars, at least in the context of third world
states. This attitude was well summarized in Samuel Huntington’s (1968) conclusion that
“the only thing worse than a society with a rigid, over-centralized and dishonest
bureaucracy is one with a rigid, over-centralized and honest bureaucracy.” This was not
an isolated view among academics and it was also reflected in de facto policies of
international organizations like the World Bank. An understanding that corruption is
corrosive not only for economic projects and policies but also for democracy and the
broader social-political fabric of society has arisen surprisingly recently. Persuading key
actors of the value of stopping international bribery constitutes a key part of the transition
to cooperation.30
Even before 1977, some international organizations addressed transnational bribery as
part of the larger issue of misconduct by multinational enterprises (MNEs). In 1975 the
General Assembly condemned corrupt practices by MNEs and asked ECOSOC and the
Commission on Transnational Corporations to study the issue; at US urging ECOSOC
began to consider a convention. The 1976 OECD Guidelines for MNEs provided that
firms should not engage in bribery abroad (and should not be expected to do so). And in
1977 the International Chamber of Commerce adopted Rules of Conduct to Combat
Extortion and Bribery. The OECD and ICC rules, as revised, have remained in effect, but
have had little apparent impact.
29
Abbott and Snidal (2002) provides a detailed theoretical and empirical examination of the
relation between values and interests.
30
A fuller discussion of changing conceptions of corruption and bribery is provided in Abbott and
Snidal (2000), elements of which are incorporated in this paper.
22
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These earlier efforts to address transnational bribery were lackluster for two related
reasons. One was that the issue was not widely perceived as a “problem” so that there
were no great incentives or normative pressures to address the problem. Second, insofar
as bribery was perceived as a bad practice, it was easily combined with the wider agenda
on transnational corporations which was highly divisive between the North and South.
To some extent, these efforts in the OECD and ICC can be understood as paying lip
service to a possible issue without seriously engaging it.
The one place where strong action against transnational bribery occurred was unilateral
American action through the 1977 FCPA, taken for a combination of domestic and
foreign policy reasons. The Watergate investigations had revealed that a number of
American firms used foreign connections to funnel illegal contributions to the Nixon
campaign. Subsequent Securities and Exchange Commission investigation, and a
“voluntary disclosure program,” revealed an astounding array of untoward activities.
Prominent examples included Lockheed Corporation payments whose revelation helped
bring down Prime Minister Tanaka of Japan and disgrace Prince Bernhard of Belgium.
In reaction, Congress unanimously passed the FCPA making it illegal for American firms
to bribe foreign officials. As we have detailed elsewhere, the moral dimensions drove
this choice over any muted interest objections (Abbott and Snidal 2002b) so that
American firms found themselves at a competitive disadvantage vis-à-vis foreign
competitors who remained free to bribe. Subsequently, business interests unsuccessfully
tried on multiple occasions to repeal these restrictions, but remained unable to convince
Congress to vote for corruption.
This “unilateral disarmament” whereby the United States restricted its firms from bribing
without eliciting parallel actions by competitor states gives the bribery problem a
somewhat one-sided character. Firms from competitor states had little interest in
“cooperation” that would only remove their advantage in gaining contracts through
bribes. Competitor states therefore had little direct interest in the issue, although they
may have broader interests in change once the consequence of bribery on developing
states and democracy are included. Moreover, once “interests” are seen as broader than
material interests and including broader values, then other states turn out to have similar
preferences to the United States in stopping bribery. 31
However, US unilateral disarmament is especially important because it meant that one
state had a strong interest in leading the move towards a cooperative outcome that
restrained bribery. American leadership was enhanced because of its paramount
importance and influence in international forums. This was not primarily a matter of its
coercive influence or ability to provide side-payments, so much as the fact that other
states feel compelled to reply to American initiatives. American success was not
guaranteed by any means and its leadership was effective only when aligned with the
right strategy and the right institutional setting.
31
Abbott and Snidal (2002).
23
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1977-88: Missteps on Process
The Carter administration provided optimistic assurances that the FCPA would serve as a
model for other countries and promised to take the issue to international forums. Soon
after FCPA was adopted, the US pursued a “big bang” strategy of seeking an
international treaty requiring equivalent regulation by other states.
In 1978, the US began consultations within OECD in preparation for the ECOSOC talks.
To its surprise, OECD governments refused to accept the desirability of a convention,
and could not agree on a common position. The ECOSOC negotiations were further
complicated by North-South politics. Southern governments refused to discuss “demand
side” measures, like restrictions on solicitation, and they viewed “supply side” measures,
restrictions on bribery, as one facet of the highly politicized issue of MNE misconduct.
The South demanded that bribery rules be linked to the proposed UN code of conduct for
MNEs, which the North strenuously resisted. Divided on North-South and West-West
lines, talks in the UN were abandoned in 1981. The US turned again to the OECD, but
found little interest, and soon abandoned its effort there as well.
Several years of inaction followed. US business sought to weaken, since it could not
repeal, the FCPA, citing the failure of international cooperation. But convincing Congress
to repeal a prohibition on bribery that reflected popular moral values proved politically
difficult, and the statute remained in force.
1988-90: The OECD Process Initiated – Haltingly.
The 1988 US Trade Act modified FCPA slightly, and directed the Executive to resume
negotiations in OECD. As a forum, this organization had distinct advantages over the
UN: its membership was relatively small and homogeneous. Its members could
effectively address the issue since the OECD encompassed the major trading nations
whose firms were the “supply side” source of most transnational bribery. Moreover,
unlike some Southern countries, the OECD member governments were not major
“demand side” bribe-takers who might hinder anti-bribery efforts for their own benefit.32
Finally, the OECD had flexible procedures, an expert Secretariat, and experience
addressing similar issues, notably money laundering through the Financial Action Task
Force (FATF).
The US government formed an inter-agency group led by the State Department
(responsible for OECD matters), and including Justice, Commerce, Treasury and other
agencies, to pursue the negotiations. This group agreed to seek a legally binding
convention with rules similar to FCPA. State Department representatives, up to the level
of Assistant Secretary, approached European governments bilaterally and appealed to the
OECD Council to consider a convention, arguing primarily on the basis of “market
32
The OECD countries were not pure on this account – as illustrated by the bribes by US firms
that helped precipitate the FCPA and multiple bribery scandals within European countries.
Indeed, one official speculated -- only partly in jest -- that one reason Italy became a supporter of
the OECD process was in the hope that if it could stop its firms from bribing abroad that might
spill back domestically. Regardless, the OECD had no extreme kleptocratic member
governments that provided strong opposition to anti-bribery efforts on these grounds.
24
Folk Theorem
Abbott & Snidal
efficiency” and noting the importance that the President and Congress placed on the
issue.
Once again, though, the Europeans refused to act. One reason was that they were not
persuaded of the importance or substantial benefit of preventing bribery. Furthermore,
their national firms were advantaged in gaining foreign contracts to the extent that the
FCPA was effective in preventing American firms from paying bribes – a point on which
they remained skeptical. To soften their refusal, the Europeans used the techniques of
gradualism, shunting US demands into low-level processes where they hoped the issue
would fade away. Arguing that the issue of illicit payments was complex and that a treaty
would raise difficult questions of interface with national legal systems, the Europeans
convinced the OECD Council to create an ad hoc group to study the problem, the weakest
possible institutional response. The group was operated through the office of legal
counsel, a sign of low status, and staffed by a temporary consultant. The US provided
most of its funds outside the regular OECD budget. Although this group initiated
worthwhile technical groundwork including a survey and analysis of national laws, there
is little doubt the issue would have died without an infusion of political momentum.
These early failures reflected many of the impediments to cooperation revealed by our
inversion of the Folk Theorem. Collective action problems were present in both the
OECD and UN. In the latter, large numbers and the deep North-South split in interests
exacerbated these problems, rendering the UN an unsatisfactory forum for considering
the issue. The OECD was a more suitable forum, but progress there was hindered by
disagreements or lack of understanding as to the cooperative gains available. Moreover,
the large number of potential equilibria made it difficult to focus negotiations. The FCPA
provided one obvious focal point, but other governments resisted it, in part because they
benefited from American unilateral disarmament.
The US tried to exert leadership, but its strategies were limited by its “unilateral
disarmament:” the threat of repealing FCPA had been shown not to be credible, and the
US was unwilling to exert its power through linkage to other issues. No other leadership
emerged at this stage. The US repeatedly failed accurately to gauge the preferences of
other states, and governments in Europe and the South may not clearly have perceived
the benefits and costs of cooperation on the issue, and thus their own interests. The status
quo exerted a powerful inertial force on European business and government.
Legalization Engages: 1990-93
New Leaders Emerge
Transition to a superior equilibrium requires the emergence of political entrepreneurs
who understand the issue, recognize the benefits of cooperation, and are in a position to
press for action. Structural theory emphasizes the leadership of “states.” But a focus on
process also brings to light the leadership role of individuals and groups, acting within
and outside of states. Three types of leaders were important in the OECD process: (1)
states; (2) individual officials in national governments and international organizations;
and (3) non-governmental organizations and activists.
25
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The US was the most important leader throughout the process. It had a strong incentive to
work for cooperation, and was the only actor with the influence to bring about a big bang.
But for all its power, the US had failed for years to achieve meaningful progress, let alone
a big bang, by working within the issue area. It could have applied more coercive tactics,
but must have believed that a coercive approach would bear disproportionate costs.
The Clinton Administration took office in 1993 and looked at the issue afresh. The new
Assistant Secretary of State for Economic and Business Affairs, Daniel Tarullo,
identified foreign bribery as an attractive issue to pursue: it combined US commercial
interests and economic efficiency with issues of good governance and appealing
normative values; it would allow the Administration to do well while also doing good.
Tarullo went to the OECD Council later in 1993 to “shake things up,” announcing that
the US would seek an agreement on foreign bribery with new vigor.
Two other groups of policy entrepreneurs influenced the US decision. The first was a
delegation of business executives led by the General Electric Company. GE’s business
was heavily affected by FCPA and they had been prosecuted under it. When efforts to
weaken the law failed, GE made the strategic decision to apply its anti-bribery policy
across the entire company, rather than segregate operations not covered by FCPA, in
order to maintain a unified corporate culture. It then redirected its political efforts toward
obtaining an international agreement.
The second was a delegation of individuals with experience in the World Bank and
international business who were then involved in creating the NGO Transparency
International (TI). Under the leadership of Peter Eigen, TI became the leading civil
society advocate for action on bribery and corruption, emphasizing their human cost in
the developing world as well as their moral impropriety. Unlike many advocacy groups,
TI positioned itself as a network of experts organized to cooperate with states, businesses
and international organizations and eschewed confrontation. A number of US business
firms, including GE, became strong supporters of TI as, more tacitly, did the US
government.
By the time the Clinton Administration took office, technical work in the OECD had
made significant strides under the leadership of Mark Pieth, a Swiss law professor who
had become chair of the ad hoc group in 1990. Pieth was quite junior, and may have been
acceptable to the Europeans for his lack of political influence. But he was able and
experienced, having worked with the successful soft law process in the FATF.
Gradualism and Legalization
All the major actors adopted a strategy of gradualism early in the process. Pieth had little
choice in the matter, given the recalcitrance of many members of the ad hoc group. He
continued to support a gradual approach throughout the process as the only way to
maintain productive group dynamics.
26
Folk Theorem
Abbott & Snidal
Tarullo recognized the PD incentives facing OECD firms and governments and believed
that a legally binding, substantively deep agreement must be the ultimate goal.33 But
mindful of past failures, European resistance and complaints about the complexity of the
issue, he concluded that a gradual process of learning and negotiation was the best way to
reach this end. A lawyer himself, Tarullo identified gradualism with legalization. He
favored beginning with non-binding soft law, then gradually strengthening legal
obligation as well as the substantive content and specificity of the rules over time.
Even TI adopted a gradual, soft law strategy. Its leaders believed that pushing
immediately for a strong, binding treaty – a big bang – would only lead to lengthy delays
for negotiation, drafting and ratification, and might well fail completely. They preferred a
longer-term process focused on changing the attitudes of business and government
leaders and the general public, and they organized their campaign around efforts at
persuasion. TI envisioned a long process: an internal memorandum from this time sets as
goals an OECD decision in 2000 (three years after the Convention was adopted), then a
UN treaty in 2004.34 TI continued to support a gradual approach throughout the process.
All these actors saw the logic of breaking the foreign bribery issue into steps – in terms of
both substance and form of action – that could be ordered to facilitate cooperation. US
priorities strongly influenced the ordering, leading to an early emphasis on criminal
prohibitions like those in FCPA. But steps were also sequenced on grounds of normative
desirability (condemning tax deductions for foreign bribes early in the process) and
benefit/cost ratio (focusing first on significant bribes to public officials, while deferring
rules on small “grease” payments and bribery of private actors).
Technological and Normative Learning
Advocates viewed a gradual OECD process as creating a series of opportunities for
learning and persuasion. European governments had from the outset raised technical
problems in objecting to OECD action. The US responded by supporting continued
analysis and discussion in the ad hoc group, and its representatives worked hard to
persuade their counterparts of the desirability of action on foreign bribery and of the
technical feasibility of particular measures. The OECD Secretariat conducted surveys of
national law and practice, and contributed background studies on difficult technical
issues.
Pieth patiently led the group through several years of “haggling” over the problems of
law, administration and politics raised by members, gradually identifying their legitimate
concerns and considering ways to address them. Over time this process also narrowed the
group’s focus to a few potential cooperative equilibria. The group first identified a set of
national measures all agreed were feasible (e.g., criminal prohibition, civil regulation,
eliminating favorable tax treatment, accounting requirements), and then sequenced their
33
Tarullo’s background was an academic lawyer and he returned to a law professorship after his
service at the State Department. In an interview, Tarullo explicitly described the basic bribery
problem as a PD and his understanding of the impact of legalization appears compatible to many
of the points developed here.
34
A comprehensive UN convention on corruption is being developed as this is written.
27
Folk Theorem
Abbott & Snidal
consideration, prioritizing tax deductions and criminalization. The group also assessed
the forms of action available in the OECD (e.g., treaty, recommendation, decision). By
early 1993 it completed a “feasibility study” of these options, agreeing that member
governments would only support a recommendation, the weakest form of action. In
February 1993, the Council authorized it to prepare a draft.
Technological learning continued throughout the process. The Secretariat, experts on the
national delegations to the ad hoc group (and their counterparts in the Committee on
Fiscal Affairs), and outside experts whom Pieth brought in to address the group all made
significant contributions. Among the most influential outside experts was a group of
national prosecutors with responsibility for corruption cases, who shared common
interests as well as legal expertise. The prosecutors strongly argued for action to facilitate
international legal assistance and undercut arguments that prosecution was infeasible or
undesirable.
The process also facilitated normative learning and persuasion. One notable example was
an early OECD conference on corruption, called for by European governments at least
partly in hopes it would release the pressure for more concrete action even as it made
progress more difficult by bringing in a wide range of opposing views. The stratagem
backfired when developing country representatives called for strong measures, arguing
that corruption was strangling their economies and stifling democracy.35
TI engaged heavily in normative and technological persuasion. With its posture as a
network of experts, it met with business and government leaders in several countries,
demonstrating how bribery and corruption hurt developing countries and suggesting
reforms. TI also argued that bribery abroad was as morally suspect as bribery at home,
and that firms engaging in bribery were as responsible as the officials who solicited them.
Pieth invited TI to address the ad hoc group on several occasions.
Discovering and Changing Preferences
The gradual OECD process helped political entrepreneurs mobilize the sometimes latent
preferences of people and groups in national societies, helping governments better
understand their “national” preferences. The process also provided entrepreneurs with
opportunities to change the understandings and preferences of business and government
leaders and publics, and thus of states.
Early in 1994, Tarullo discovered, “almost by accident,” a powerful strategy for
mobilizing and changing preferences of key participant states. At that time domestic
corruption scandals were rife in Europe, as reflected by the Financial Times’ headline
summary of 1994 as “A Year of Corruption.” When European journalists interviewed
Tarullo, he began to leverage public concern over those events into pressure on the
OECD negotiations. While careful not to criticize governments directly, he suggested that
the US was frustrated with the slow pace and the resistance of other governments. The
35
During the conference, Olusegun Obasanjo, a strong African voice against corruption (now
president of Nigeria), was arrested by the corrupt Nigerian government. This event, widely
covered by the world press, highlighted the points Southern advocates were making.
28
Folk Theorem
Abbott & Snidal
press was quick to follow up, and Tarullo began to play on official fears of press and
public criticism. For example, he claimed to carry with him a list of the largest bribepaying companies in the world (many of which would be European), and would subtly
threaten to make it public. The potential political costs of appearing to be lax on
corruption made it increasingly difficult for European leaders to drag their feet on the
issue.36
Pieth worked to change preferences within the ad hoc group by direct persuasion and by
exposing delegates to the views of outsiders. He repeatedly scheduled outside
presentations, by prosecutors, leaders of business organizations and members of TI.
Indeed, from 1993 on, Pieth helped TI to coordinate its campaign of persuasion with
OECD activities.
TI leaders met privately with European government officials and business executives,
gradually enlisting executives willing to condemn foreign bribery publicly – and thus
making it easier for others to do so (and harder not to do so). At a major turning point in
1997, TI published an influential open letter from European CEO’s pledging not to
engage in bribery and calling on governments to support OECD action. TI’s national
chapters organized local campaigns promoting normative deliberation and persuasion
within their societies and organizing political influence on governments.
Transition to a New Equilibrium: 1994-97
Ratcheting Up
By early 1994 the ad hoc group had drafted a Recommendation that included innocuous
language calling on governments to consider six areas for action (criminal prohibitions,
civil or common law actions, removal of tax subsidies, tighter accounting regulation,
stronger banking and financial provisions, and public procurement rules). This weak an
instrument was unacceptable to the US. The Secretary of Commerce and other officials
came to the OECD to demand stronger action. In April, the Committee on Investment and
Multinational Enterprises (CIME) agreed to add language recommending that member
states “take effective measures” and “concrete and meaningful steps,” such as those
listed, to combat foreign bribery. This version was adopted at a ministerial meeting in
June 1994, the first new international norms since 1977.
Viewed as a legal instrument, the 1994 Recommendation is in the words of one
participant “pathetic,” even with the added language. Some European leaders saw it
simply as a sop to the US. But advocates considered it an “excellent overture to a long
opera.” As part of a gradual, soft law process, the Recommendation had several virtues. 37
Most significantly, it sent a clear signal that the status quo focal point – unchecked (and
quietly condoned) foreign bribery – was no longer valid, even if the new focal point was
not yet clear. Institutionally, it elevated Pieth’s group to the status of a Working Group
36
For a more detailed elaboration of the relation between values and interests see Abbott and
Snidal (2002).
37
On the use of soft law see Abbott and Snidal (2000a) for a theoretical account and Shelten
(2001) for a wide range of empirical examples.
29
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Abbott & Snidal
under CIME, providing greater legitimacy and support within the organization, and it
moved the tax issue jointly to the Fiscal Affairs Committee, which had greater expertise.
The Recommendation also began the process we call “ratcheting up.” Each step in a
successful ratcheting process must meet three criteria: it must exert influence on its own
until a subsequent step is taken, facilitate additional progress forward, and limit
backsliding. The 1994 Recommendation satisfied all three:
(1) It created a normative system able to influence behavior (albeit weakly) even if no
further steps were taken. Its rule-like character and recommended actions
provided standards of conduct by which publics could assess national behavior
and advocates like TI could criticize laggards. The Working Group was
authorized to monitor compliance, and the Secretariat was authorized to
coordinate with other organizations working on corruption issues.
(2) The Recommendation removed any argument that OECD should not consider
foreign bribery or that bribery was an acceptable practice. This provided a
normative vehicle for the US, TI and other advocates to push for additional
action. It further authorized the Working Group to continue studying the issue and
recommend further steps; its list of specific actions gave Pieth a clear agenda. The
Recommendation also kept the issue on the political agenda by calling for Council
review in three years.
(3) Backsliding was made more difficult by the pledge of reputation created by
adoption at ministerial level. The OECD institutional arrangement provided a
forum in which (non)performance could be publicized so that reputations were
truly staked and discursive tactics of “shaming” would be more effective. This
was reinforced by the beginnings of similar action in the Council of Europe and
other forums, and by political pressure from the US, TI and other advocates.
Four additional steps in the ratcheting up process followed over the next three and a half
years.
The Tax Recommendation
In April 1996, the Council approved a Recommendation condemning tax deductions for
foreign bribes, to be monitored by CIME and Fiscal Affairs. This instrument also
satisfied the three ratcheting criteria. It was effective enough in changing national
behavior that it was not thought necessary to include tax provisions in the ultimate OECD
Convention.
The Agreed Common Elements
Following the 1994 Recommendation, the Working Group considered several areas for
action, including auditing rules and government procurement policy, but it devoted much
of its efforts to criminal prohibitions. Discussions focused to a large extent on legal
issues. Delegates and advocates grappled with the appropriate legal character of further
OECD action: should the organization continue to act through soft law, or begin
30
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Abbott & Snidal
negotiations on a legally binding convention? Which approach would further each actor’s
strategic goals? Which would lead to a more effective agreement?
With this issue threatening to stall discussions, Pieth suggested a creative solution: the
Group would elaborate the substantive principles necessary for effective national criminal
law under any type of international directive, and defer the divisive question of the
specific institutional form (i.e., hard vs. soft law) —another example of ordering steps in
a gradual process. OECD ministers approved this approach at the April 1996 ministerial
meeting.
Pieth’s solution walked a fine line in terms of legalization. On one hand, the elaboration
of substantive principles was framed as a legal issue since there was now agreement that
bribery was wrong. This depoliticized the process. The work could be handed over to
legal experts who could focus on neutral technical issues where they might more easily
reach consensus. On the other hand, the process was simultaneously cast as less than fully
legal: because the question of legal form was deferred, the principles under consideration
might never become legally binding. This rendered the process less threatening to
governments, allowing it to go forward.
Pieth entrusted the work of drafting uniform principles to a sub-group of legal experts,
with an eye to producing a report for the May 1997 ministerial meeting that was
scheduled to review the 1994 Recommendation. By April, the experts had drawn up a set
of eight “Agreed Common Elements” for national legislation, addressing contentious
legal issues such as the formal definition of the offense of bribery, the criteria by which
states could assert jurisdiction over conduct outside their territories, and the coordination
of enforcement mechanisms.
The 1997 Recommendation
As the Working Group prepared for the 1997 ministerial, France and Germany -- among
the strongest opponents of international action -- performed a striking about-face,
demanding that the OECD act by legally binding treaty.38 Both argued that a hard law
solution was necessary to solve the Assurance problem presented by the concern that
other parties might not fully implement a softer agreement. But many participants felt
that the new demands were largely intended to use the greater transactions costs of hard
legalization and the big bang to delay or prevent action altogether.
The Group was able to submit to the May 1997 ministerial a greatly expanded draft
Recommendation, designed to replace the one adopted in 1994. The draft added
numerous provisions, including new norms on auditing and procurement. On the core
question of criminalizing foreign bribery, the draft called on governments to adopt
criminal prohibitions in an “effective and coordinated manner” and in conformity with
38
The specific treaty provisions proposed by the French and German delegations were also
controversial, especially a provision that would have limited the definition of the prohibited
conduct to bribery of a public official in another state party to the convention, that is, in another
OECD country or in one of the few non-member countries that ratified the agreement. The
Working Group rejected this narrow definitional approach.
31
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the Agreed Common Elements. The Group was still stalemated over the contentious issue
of legal form, however, so it bracketed two alternatives (recommendation or convention),
proposing a separate timetable for each. Under both options, it recommended “systematic
follow-up to monitor and promote … full implementation,” based on procedures for
“self-evaluation and peer review” conducted by the Working Group itself.
To resolve the question of legal form, a complex compromise was developed at the
ministerial meeting. OECD governments would promptly begin negotiations on a
convention (to appease France and Germany), but imposed a December 1997 deadline for
negotiations – extremely short compared to normal practice –to alleviate US fears of
delay and loss of momentum. Whatever the outcome of the treaty negotiations,
governments would submit legislation consistent with the Agreed Common Elements to
their legislatures by April 1998, and endeavor to adopt it by December of that year. Most
parties were ambivalent about this solution, but it broke the stalemate over legal form and
made it possible for ministers to adopt the Recommendation.
The May, 1997 Recommendation was a major step in the process of ratcheting up. More
than any previous instrument, it was fashioned to stand on its own as a normative system;
in fact, it continues to serve as the applicable OECD instrument on corruption in areas
outside the Convention. The Recommendation reiterated all previously adopted norms
and added important new ones on criminalization, auditing, procurement and other issues.
Building on its 1994 predecessor, it authorized the Working Group to monitor and
implement these norms. The Recommendation entailed a pledge of reputation, and
exposed governments to public pressure, limiting backsliding. Looking ahead, in addition
to the compromise on treaty negotiations, it authorized the Group to study or negotiate on
specified additional issues.
The 1997 Convention
In the summer of 1997, Pieth called together representatives of all governments that had
submitted proposed treaty texts, other leading members of the Working Group, and key
Secretariat officials, including the General Counsel. Over a long weekend, this group
succeeded in integrating these proposals and the Agreed Common Elements into a single
text.
In the fall, the Working Group made further revisions in the draft text. The Group also
drafted a set of Commentaries on the text, explaining the intent behind each provision.
TI, the International Chamber of Commerce, a committee of experts from the OECD
Business-Industry Advisory Committee and other concerned groups submitted comments
and proposals on both texts. Pieth sponsored another opportunity for these groups to
consult with the Group. Outside the OECD, TI and the other advocates stepped up their
campaigns of persuasion.
Negotiating a treaty proved to be easier than anyone had foreseen, because of the steps
already taken in the process of ratcheting up. The 1997 Recommendation had established
the expectation that OECD member states would adopt criminal legislation whatever the
outcome of the treaty negotiations. Governments had largely internalized this expectation
through the process of revealing and changing preferences. The years of technical work,
32
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Abbott & Snidal
especially preparation of the Agreed Common Elements, had resolved the most
challenging legal problems.
The final step was almost anticlimactic. OECD governments approved the text of the
treaty and commentaries at a conference in November 1997 – more than a month before
the December deadline most had seen as unrealistic. On December 18, 34 states – all the
OECD members, plus Argentina, Brazil, Bulgaria, Chile and the Slovak Republic –
signed the convention, affirming that they would submit implementing legislation by
April 1998 and take all steps necessary to bring it into force by the end of the year.
Narrowing the equilibrium space
The OECD process narrowed the range of available cooperative equilibria, thus
facilitating coordination on an outcome. In this forum, rules addressing the demand side
of the issue – questions of domestic corruption and solicitation of bribes by public
officials – were essentially off the table, unlike the earlier divisive experience in
ECOSOC. Few Southern governments were participating in the OECD process, and
Northern governments were generally thought to have adequate laws on domestic
corruption, in spite of the frequent scandals breaking during the negotiations. The focus
was therefore on transnational bribery, implicitly framed as a North to South problem.
Advocates on both sides saw this focus as failing to address important features of the
problem. TI leaders were concerned above all with the effects of corruption on the
developing world. While Recommendations and a Convention dealing with bribery by
Northern firms would have an important impact on those problems, many additional
remedies on the demand side could have been added. Business leaders were concerned
that blame for corruption not be cast solely on them, but allocated equally to corrupt
officials. They argued their need for protection from predatory official demanding bribes.
The focus on the supply-side of transnational bribery did little to address their concern.
Yet the narrow focus on bribery matched the subject of negotiation to the membership
and expertise of the OECD, making an effective agreement possible, and avoided the
debilitating divisions experienced in the earlier UN process.
The values underlying the OECD process also narrowed options. Throughout the 1990s,
informed opinion came increasingly to agree that bribery and corruption were
economically and politically destructive and therefore morally “bad.” The OECD
accepted this view early on: the 1994 Recommendation notes that transnational bribery
raises “serious moral and political concerns,” as well as “distorting international
competitive conditions.” With this normative approach, it became natural to focus on
criminalization, rather than weaker and less stigmatizing civil or administrative remedies.
It was also difficult for opponents to maintain a distinction between domestic and foreign
bribery, leading to a sweeping prohibition.39
The gradual OECD process also enabled negotiators to order and choose among the
remaining equilibria. The 1994 Recommendation set the general substantive parameters
39
The French-German proposal would have drawn such distinctions, and this is a major reason
why it was rejected.
33
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Abbott & Snidal
as bribery of foreign public officials aimed at obtaining business. That decision pushed
out to the future consideration of issues such as bribery of private actors and bribery to
obtain a regulatory result. The 1994 Recommendation also singled out six categories of
national response (noted earlier) with negotiators taking up criminalization and tax first
due to US pressure and normative considerations. Similarly, the Working Group focused
on one form of action, the recommendation, gradually adding substantive content, scope
and detail as well as institutional support, moving to a treaty only when a consensus had
been reached.
Within each stage of decision, a range of more detailed alternatives emerges. Once it is
decided to focus on bribery of public officials, for example, what should be done about
small “grease” payments40 or campaign contributions?41 Once it is decided to focus on
criminal prohibitions, what should be done about penalties, or prosecutorial discretion?
While equilibria proliferate at each level of detail, a gradual process allows them to be
selected on increasingly technical grounds, often by specialized experts. In the OECD
process, shaped by legal considerations, legalization and legal experts served this
function. As the experience of the Agreed Common Elements reveals, consensus at the
technical level can remove the basis for political objection, facilitating agreement.
Addressing the Assurance Problem
Assurance was a serious problem throughout the OECD negotiations. European business
leaders and government representatives raised the concern even before the 1994
Recommendation, and it increased in intensity as the soft law process came to have
greater bite: with the 1996 Recommendation on tax deductions and especially as
momentum built for the 1997 Recommendation, with its norms on criminalization.
Suspicion aggravated the problem. Each OECD government argued that it was doing
more to combat bribery than the others were. As the process moved toward a requirement
of criminalization, each government similarly took the position that its prosecutors and
judges would dutifully apply a criminal prohibition, but that the officials of other states
would find legal loopholes to permit continued misconduct by their firms. Each saw legal
rules as binding and values as “sticky” in its own system, not so in others. In support of
this position, Europeans argued that US legal authorities had so freely used loopholes like
prosecutorial discretion and flexible penalties in consent decrees that the FCPA was not
preventing US firms from bribing. (Off the record revelations by Swiss bankers who had
served as conduits for such bribes suggest that European doubts were not groundless.)
Assurance was a core issue in the protracted treaty vs. soft law debate. France, Germany
and the other European governments argued strongly that only a binding treaty could
solve the problem, although during much of the process they opposed any OECD action.
Advocates like the US and TI feared the treaty route would be slower, less flexible and
more likely to fail completely (and that this was the goal of the French-German axis). But
40
Grease payments — small payments to public officials to perform official acts such as clearing
goods through customs or expediting regulatory approval — were excluded from the Convention
because of the administrative problems of dealing with them.
41
Campaign contributions were excluded because of the political costs of addressing them.
34
Folk Theorem
Abbott & Snidal
could soft law resolve the Assurance problem? TI and Pieth, in particular, argued that soft
law coupled with an effective follow-up process was at least as effective as a treaty, since
persuasion, peer review and public pressure could affect behavior more powerfully than a
mere legal obligation.
The Assurance problem is considerably more complicated in this setting than in the usual
dichotomous game model. It is not sufficient for competing states to reach a cooperative
agreement, even a legally binding one, for they can still slip out of their commitments in
many ways. Once agreed, a treaty must be ratified. Once ratified, its rules must often, as
here, be brought into national legal systems through implementing legislation, which can
be shaded in many ways. Once adopted, the legislation must be put in practice by
prosecutors and judges, who often operate independently of the executive, or at least the
foreign affairs ministry. In effect, one can never know if the problem has been resolved
and one can always dispute whether the other is cooperating as fully as agreed.
The problem is further complicated because national legal systems differ widely on
fundamental issues like the reach of national jurisdiction, the availability of criminal
liability for corporations, and approaches to enforcement. It is difficult to determine a
focal point that is sufficiently specific to resolve the Assurance concerns and sufficiently
general to cover national legal systems as diverse as those of the US, France, Japan and
Korea.
The Working Group wrestled with Assurance mechanisms at several stages in the OECD
process. By 1996, when the Group separated consideration of substantive principles form
legal form, it was clear that Assurance concerns would dominate even the substantive
negotiations. At the 1996 ministerial meeting, the Group reported that it would be
necessary to criminalize foreign bribery “in an effective and co-ordinated manner.” The
group drafting the Agreed Common Elements shaped its work around an interpretation of
this phrase, reading “co-ordinated” as something less than “harmonized.” The legal
elements had to be general enough to accommodate different national systems, rather
than requiring identical legislation in every country. For this reason the Common
Elements were limited to key points and phrased in general terms.
Much the same approach was taken during preparation of the treaty text. Here the
operative concept was “functional equivalence,” a device adapted from comparative law
theory. The Commentaries summarized this technique as follows:
This convention seeks to assure a functional equivalence among the measures
taken by Parties to sanction bribery of foreign public officials, without requiring
uniformity or changes in fundamental principles of a Party’s legal system.
Thus members could translate Convention principles into their own systems so long as
equivalent results were achieved. Among other things, this meant that member states
could impose different penalties for prohibited conduct so long as they were “effective,
proportionate and dissuasive.” For example, states that did not accept criminal liability
for corporations could impose equivalent civil penalties. On this point US business
leaders expressed skepticism about likely European performance.
35
Folk Theorem
Abbott & Snidal
All parties, concerned with Assurance under a regime of “functional equivalence,” saw
the follow-up process managed by the Working Group as crucial. The Convention
included an unusual two-part peer review process. In the first stage, peer review teams
from the Group analyze national implementing legislation for conformity to Convention
norms. In the second, more innovative stage, teams will analyze the enforcement
procedures of national prosecutors, examining, for example, how they identify potential
violations. Not really an “enforcement” mechanism,42 peer review was designed to ensure
that all parties have equivalent expectations as to the behavior required, and to expose
laggards to persuasion and political pressure.
Assurance arose once more as treaty negotiations drew to a close, in connection with the
rule on entry into force. The governments (and business groups) most concerned that
others might take advantage of their adherence insisted on a high threshold for entry into
force: no state should become subject to the treaty, even after ratifying it, until all, or a
large proportion, or all the largest of the OECD member states had ratified. The problem,
of course, is that this approach confers veto power to prevent the treaty from coming into
force on any small bloc of opponents. TI and other proponents therefore argued for a low
threshold, as low as two states or no threshold at all: each state would then be subject to
the treaty as soon as it ratified. But this approach fails to address the Assurance problem:
no state will be the first (or second, or third) to ratify.
Again, negotiators bridged the gap with a complex compromise. The treaty was to enter
into force once five of the ten largest exporting states in the OECD, accounting for at
least 60% of the total exports of the ten, had ratified. However, if this threshold had not
been reached by December 1998, then the Convention would enter into force (for those
ratifying) once any two states had ratified. Because of delays in submitting instruments of
ratification, the latter provision actually determined entry into force.
IV. Conclusion: How Gradualism and Legalization Expand Our Understanding of
Cooperation
Although it remains premature to evaluate the effectiveness of the OECD Anti-Bribery
Convention,43 it is none too early to evaluate the effectiveness of gradualism in reaching
a cooperative agreement. After nearly twenty years of frustration with getting other
states to accept a comprehensive ban on transnational bribery, the United States achieved
that very goal in remarkably short order. An essential part of this was not attempting to
move in one step before other actors understood the problem and recognized the benefits
of cooperation. Even when other states were convinced, it was important to use a gradual
and legalized process to organize cooperation to fit varying national institutional
42
The key enforcement comes through the domestic legal system since the targets of enforcement
are firms not states. The second-order international enforcement problem addressed by the
OECD Working Group is to be sure that states implement and apply the required rules.
43
For an optimistic assessment by an OECD official on country compliance in implementation
see Quinones (2001). Lashmar (2001), however, also notes U.S. State Department reports on a
significant incidence of bribes that are illegal under the Anti-Bribery convention but are
apparently not being prosecuted.
36
Folk Theorem
Abbott & Snidal
circumstances and to assuage the uncertainties underlying the Assurance problem. The
OECD proved to be an effective forum for organizing the key states in this effort,
allowing them to gradually ratchet up a cooperative solution that met their needs.
Ironically, by approaching things gradually, the United States was able to move the
OECD states to a cooperative equilibrium much faster than when it tried to move quickly
in a big bang.
Of course, one case cannot establish a general conclusion on the effectiveness of
gradualism. What it can do is illustrate how legalization operates in practice to overcome
problems in the transition to cooperation. It can also suggest how theoretically-informed
analysis not only improves our understanding of those events but also potentially feeds
back to the theory itself to suggest how it can be improved. While our understanding of
gradualism and legal process is still evolving, it appears to be a promising part of the
explanation of how states actually get to cooperative outcomes.
Finally, a major purpose of this paper has been to fill a lacunae in international relations
theory — specifically but not exclusively in liberal institutionalist theories of cooperation
based on the folk theorem — in explaining the transition to cooperation. Structural
theory can and has explained much about the prospects of cooperation but cannot provide
a proper account of how that cooperation comes about. By incorporating a parallel story
of the processes involving negotiation, learning, leadership and so forth, we can obtain a
much richer understanding of the steps to cooperation. While legalization is not the only
form that such gradualism can take, the anti-bribery case indicates its special advantages
that help explain its pervasiveness in modern international cooperation. Such process
oriented explanation have the further advantage of exposing the strategies that effective
entrepreneurs use in promoting cooperation and provides valuable lessons for cooperation
in other areas.
37
Folk Theorem
Abbott & Snidal
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Not
Cooperate
Cooperate
Cooperate
1, 4
3, 3
Not
Cooperate
2, 2
4, 1
Figure 1: PD Stage Game
The PD game is presented in a slightly unorthodox
array to correspond with Figure 2 below.
Payoff
to Row
1, 4
3, 3
2, 2
4, 1
Payoff to
Column
Figure 2: Folk Theorem
The Folk Theorem shows that all outcomes in the shaded
area can be supported provided that actors care sufficiently
about the future.
41
Folk Theorem
Abbott & Snidal
Intermediate
Steps
Figure 3: Gradual Path to Cooperation
42