How global rules are established and stabilised

This paper analyses how international rules are established and stabilised - how an international institutional order develops. It looks at mechanisms that stabilise rule systems, at bargaining procedures for cooperation gains, dispute settlement, sanctions, side payments, self-enforcing contracts, and global public goods.

The author explains that institutional rules have developed in an evolutionary process. They emerge in many ways - learning from experience and searching explicitly for lower transaction costs, internalising border crossing externalities and dealing with global public goods. One way to explain the emergence of rules is to interpret them as the result of learning from experience. A negative experience that inflicts severe hardship on people becomes the underlying origin of a new rule. In such cases, rules are established ex post, after the negative experience has been made. They represent the ex-post result of preventing human tragedies in the future and may be regarded as the outcome of pathological learning.

The paper concludes stating that the European Union can be viewed as a laboratory experiment for nation states ceding sovereignty:

• in the EU, the principle of mutual recognition allows different legal settings to coexist and compete with each other - the Union’s powers in judicial cooperation, the free movement of persons, foreign policy and public health have been strengthened
  
• trade policy, competition policy and control of state subsidies are completely centralised and in the hands of the commission - monetary policy in the euro area of thirteen member states is also compelety centralised and de-politicised
  
• agricultural policy, the single market, international agreements, regional and cohesion funds, and financial assistance in crisis are decisions of the European Council requiring qualified majority - environment, consumer protection and transfrontier movement of labor are shared responsibilities between the commission and nation states
  
• monetary policy in the euro area of thirteen member states is also compelety centralised and de-politicised - monetary policy and competition policy have been unconditionally delegated to independent agents where the ECB is only checked by public opinion.