Anarchy as an Equilibrium: A Theoretical Analysis

Security: Theory and Policy

Abstract

Realists regard the anarchic structure of international relations as exogenous constraints on the foreign policy decisions of sovereign states. They do not explain but assume anarchy. They explain, instead, that the absence of centralized authority, which enforces international agreements, hinders the efficient solution of political conflicts among states, as in a Prisoner's Dilemma game. But why is this anarchy as an inefficient institution sustained by rational actors? Why don't the rational states attempt to establish international institutions that would facilitate the centralized making and enforcement of international agreements?
They do not do so because the centralized making of agreements would fail to serve their common interest for the following four reasons even if the centralized enforcement would serve their common interest. First, the decentralized control of information by sovereign states can be a bargaining advantage. Second, even if states comply with agreements without centralized enforcement, as in the case of policy coordination, they often have divergent preferences over which policy to choose as a common policy. Third, it is extremely difficult to establish a centralized authority which clearly defines property rights beyond national borders even if the clear definition of property rights could improve the efficiency of decentralized bargaining over the regulation of economic activities with international externalities, as Ronald Coase argues. It is because the international definition of property rights is expected to generate serious distributional consequences. Fourth, developed and developing countries have divergent interests in agreements that would have redistributional effects among them.