Hierarchy Amidst Anarchy: A Transaction Costs Approach to International Security Cooperation

This article provides an interest-based explanation for hierarchy in international politics. The study suggests that—even in a self-help system—self–interested actors voluntarily curtail their sovereignty to obtain needed assurances, yet that these actors have a choice among cooperative security arrangements with different degrees of "bindingness." The key to understanding countries' international institutional choices is in focusing on economic theories of organization and, more specifically, transaction costs. The study begins with the conceptualization of a continuum of cooperative security arrangements with different degrees of bindingness. It then examines different bodies of literature—the traditional realist model and economies–of–scale arguments—and claims that both fail to account for hierarchical security structures in the international system. Recognizing that economists explain hierarchy amidst market anarchy by examining transaction costs, the study makes use of this insight by developing an analogous argument for hierarchy in international politics. Finally, to test the propositions advanced in this article, a brief case study examines plans for the creation of a European Defense Community.