PERREZ - 1998 - Efficiency of Cooperation A Functional Analysis of Sovereignty

Efficiency of Cooperation: A Functional
Analysis of Sovereignty [Article]
Item Type Article; text
Authors Perrez, Franz Xaver
Citation 15 Ariz. J. Int'l & Comp. L. 515 (1998)
Publisher The University of Arizona James E. Rogers College of Law

(Tucson, AZ)
Journal Arizona Journal of International and Comparative Law
Rights Copyright © The Author(s)
Download date 04/10/2021 03:14:38
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Link to Item http://hdl.handle.net/10150/659297

THE EFFICIENCY OF COOPERATION:
A FUNCTIONAL ANALYSIS OF SOVEREIGNTY
Franz Xaver Perrez*
L INTRODUCTION
This article is a part of a larger project' analyzing the relationship

between permanent sovereignty over natural resources and the obligation not to
cause transboundary environmental degradation. These principles seem to
represent "two fundamental objectives pulling in opposing directions." 2
However, it is the aim of this project to reconcile the two principles. I have
shown in a previous article, 3 that the principle of permanent sovereignty
comprises the respect of the other state's permanent sovereignty and thus the duty
to prevent interference with their resources.4 Therefore, permanent sovereignty
inherently includes the obligation not to cause transboundary environmental
damage. It is the aim of this article to show that a functional analysis of
sovereignty leads to the acceptance that sovereignty must include an element of
cooperation. Cooperation increases the welfare and power of a state and furthers
the efficiency of dealing with today's challenges which typically have an
international notion. Consequently, a cooperative understanding of sovereignty
may be preferable to an understanding of sovereignty merely as independence
and freedom. It will be the task of a future article to demonstrate that according
to a modem understanding of international law, permanent sovereignty indeed
includes a responsibility to cooperate and to prevent environmental damage with
negative external effects.
Part II of this article describes a functional analysis of sovereignty,
defines cooperation as the opposite of acting independently, and presents the
* Attorney, Bern, Switzerland; candidate for J.S.D. (New York University);

LL.M. 1996, New York University; additional studies at University of Bern School of Law
1985-88, 1991-92, and Universitd de Paris II 1988-89; formerly legal counsel to the
Department of Public International Law, Swiss Department of Foreign Affairs 1993-95. I
wish to thank Prof. Philippe Sands and Prof. Walter Kin for their support and Professor
Richard Stewart for his critical review of the first draft of this Article. Furthermore, I
gratefully acknowledge financial support by the Swiss National Fund.
1. This project is part of my doctoral thesis "Permanent Sovereignty as
Responsibility to Cooperate" (provisional title).
2. PHILIPPE SANDS, PRINCIPLES OF INTERNATIONAL ENVIRONMENTAL LAW 186
(1995)
3. Franz Xaver Perrez, The Relationship between "PermanentSovereignty" and
the Obligation Not to Cause TransboundaryEnvironmental Damage, 26 ENVTL. L. 1187
(1996).
4. Id. at 1204-12 (especially 1207-10).
5. Id. at 1212
516 Arizona Journalof Internationaland ComparativeLaw VoL 15, No. 2 1998
international order as an allocation of jurisdiction and power among the states. It

then describes an order of full and equal distribution of authority in which
autonomous states act independently. Part III argues that there are several reasons
why such a system of independently acting states is not efficient. Part IV,
therefore, concludes that rational states would not be content with such a full
distribution of authority, but would prefer an international order that includes an
element of cooperation.
II. FUNCTIONAL ANALYSIS, COOPERATION

AND INTERNATIONAL ORDER AS
ALLOCATION OF AUTHORITY
A. Functional Analysis
The Oxford English Dictionary defines functional as "[p]ertaining to or

serving a function." 6 Functionality thus depends on the function, or the aim that
is pursued.7 Consequently, there may be different "functionalities." While an
economic functionality would be aimed at an efficient allocation and use of
resources, an environmental functionality would focus on environmental goals.
An environmentally functional analysis would examine whether a measure
effectively serves the aim to preserve the environment and a measure would be
environmentally functional, if it succeeds in protecting effectively the
environment, independent of its "value" or "utility" for mankind. It seems
obvious that a global order that gives each state the right to act independently and
to freely adopt measures that destroy natural resources is not environmentally
functional. Furthermore, the limits of the traditional neighborly approach,8 and
6. THE OxFoRD ENGLISH DICTIONARY, Vol. VI, 264 (2d ed. 1989).
7. See Jtirgen Habermas, Moderne und postmoderne Architektur 2 DER
ARCHrrEKT 55-58 (1982), reprinted in: WEGa AUS DER MODERNE: SCHLOSSELTEXTE DER
POSTMODERNE-DISKUSSION 110, 117 (Wolfgang Welsch ed., 1994) (indicating that those
means are functional that aid a certain purpose, that however functionality may also serve
to stabilize a system that is not desired or not agreed upon--therefore, what is functional in
the eyes of economy and administration does not have to be functional for the people).
While functionality was one of the major goals of modernism, postmodemism criticized
the modem functionalism for focusing merely on technical issues and thereby neglecting
the human potential; see e.g. Albrecht Wellmer, Kunst und industrielle Produktion. Zur
Dialektik von Moderne und Postmoderne,in A. WELLMER, ZUR DIALEKTIK VON MODERNE
UND POSTMODERNE: VERNUNFTKRMK NACH ADORNO, 115 (1989), reprintedin WEGE AUS
DER MODERNE: SCHLOSSELTEXTE DER POSTMODERNE-DISKUSSION 247, 249-50 (Wolfgang
Welsch ed., 1994).
8. The traditional neighborly approach would try to solve international
environmental problems by prohibiting states from causing significant transboundary
environmental damage. However, in a world full of interdependencies where multiple
The Efficiency of Cooperation:A FunctionAnalysis of Sovereignty
the fact that many fundamental environmental problems cannot be solved by

independently acting states, clearly indicates that only a cooperative order would
be environmentally functional. Thus, an environmentally functional analysis of
sovereignty would indicate that an understanding of sovereignty merely as
independence and freedom is not functional, but that sovereignty must include
the obligation to cooperate.
Although focusing on environmental issues, this article is based on a
more general understanding of functionality, a functionality not limited to
environmental objectives but rather following an economic approach. 9 It
explores what understanding of sovereignty states would regard generally as
most efficient in serving their interest in maximizing welfare. This interest
obviously includes the promotion of economic well-being. However, as harms to
the environment pose a threat to social welfare, 10 it also includes the aim to
protect the environment. Thus, the overall goal is welfare maximization, and a
functional analysis tries to evaluate whether something serves efficiently this
goal of maximizing the welfare. Possible motivations other than welfare 11
maximization (like moral prestige or nationalism) are not taken into account.
The analysis of this article focuses, therefore, on the question whether a
definition of sovereignty merely as independence and freedom or an
understanding of sovereignty that includes a cooperative element is more
functional, in other words, serves more efficiently the goal of increasing and
maximizing welfare. Such a functional approach finds its intellectual heritage in
utilitarian philosophy and classical economics and probability theory.12 The
functional approach is utilitarian insofar as it analyzes alternatives according to
their consequences, with an aim toward reaching an optimal outcome." Like
(neo)-classical economics, it uses game theory1 and relies on the fiction of a
actors contribute to the global environmental degradation and where the precise causalities
often are unclear, this approach may not effectively protect the natural recourses and the
global environment. J6rg LOcke therefore clearly distinguishes the customary prohibition
of transboundary pollution that addresses only the territorial integrity of the neighbor state,
and a general international principle of environmental protection, which also includes a
duty to cooperate. J6rg LOcke, Universales Verfassungsrecht, Vdlkerrecht und Schutz der
Umwelt, 35 ARCHIV DES VLKERRECHTS 1, 11-14,27 (English summary) (1997).
9. For a short introduction to the economic approach to law, see RICHARD A.
POSNER, ECONOMIC ANALYSIS OF LAW, 19-26 (1986).
10. Daniel C. Esty, Revitalizing Environmental Federalism, 95 MICH. L. REv.
570, 575 (1996).
11. Thus, the concept of wealth maximization is at the center of the economic
analysis of sovereignty. See R. M. DWORKING, A MATTER oFPRINCIPLE 237 (1985).
12. OTFRIED HOFFE, ETH[K UND POLrrIK: GRUNDMODELLE UND-PROBLEME DER
PRAKTISCHEN PHILOSOPHE 339 (1992).
13. Id. at 339.
14. For an understandable introduction to the game theory, see PAUL A.
SAMUELSON & WILLIAM D. NORDHAUS, ECONOMICS 205-11 (14th ed. 1992). The new
518 Arizona Journalof Internationaland ComparativeLaw Vol. 15, No. 2 1998
homo oeconomicus (or "res publica oeconomica"), in other words, a person or

state that (1) pursues only its own advantage, and (2) pursues the maximization
of its advantage. 15 Finally it relies on instruments 16 of probability theory in
translating risks and uncertainties into probabilities.
However, it must be emphasized that such a functional or economic
analysis is limited. It is based on the assumption of individual and rational states
driven by "self-interest and the search for strategic advantage,"' 17 which pursue
the welfare of their citizens. Thus, individuals and states would always choose
"those strategies which they believe will leave them better off than would any
other possible strategy."' 8 This "rational self-interest hypothesis" may be
criticized for adopting "a markedly constricted, morally impoverished view of
human behaviour."' 19 It neglects that states are historically constructed social
entities, the preferences and interests of which may be shaped by moral
considerations and may develop over time, and that their decisions and acts can
sometimes not be explained merely by rational self-interest. 20 The interests and
goals of states are not objectively preexistent but the result of a political process.
They evolve and are influenced by socioeconomic reality, and they may not be
clear and precise enough to enable a rational and objective determination of the
measures serving best their self-interests. 21 Moreover, a state's representatives
may pursue personal interests rather than the interests of all citizens. Even a
democratic regime may pursue minority interests and not the welfare of all, since
element the game theory has introduced is to think through the goals and actions of the
other participants in the economy and to take decisions based upon the analysis of the
other participant's goals and actions. As the others will analyze your strategy as well, you
"pick your strategy by asking what makes most sense for you assuming that your opponent
is acting strategically and acting on his or her best interest." Id. at 206-07. See also John
M. Finnis, Law as Co-ordination, 2 RATIO JURIS 97, 98-99 (1989) (arguing that game
theory is only of limited utility for law as "in real life alternatives do not present
themselves for choice in fully bounded situations or in transitive rankings.")
15. HOFE,supra note 12, at 339.
16. Id. at 339-40.
17. Richard B. Stewart, Environmental Regulation and International
Competitiveness, 102 YALE L.J. 2039, 2041 (1993) [hereinafter Environmental
Regulation].
18. Neil Duxbury, Games and Rules, 83 Archiv fur Rechts-und Sozialphilosophie
[ARSP] 1, 6 (1997). See also Stephan D. Krasner, Structural Causes and Regime
Consequences: Regimes as Intervening Variables, 36 INT'L ORO. 185, 195 (1982), who
refers to the egoist self-interest as the aspiration "to maximize one's own utility function
where that function does not include the utility of another party." Id.
19. Duxbury, supra note 18, at 2.
20. For a general critique of the assumption of a rational self interest, see William
Lucy, Game Theory and the Law, 54 CAMBRIDGE L.J. 465, 466-67 (1995) (reviewing
DOUGLAS G. BArD ET AL., GAME THEORY AND THE LAW (1994)).
21. HbFFE,supra note 12, at 352,425-26.
not all interests are represented with the same force.2" Likewise, interests of
future generations may be neglected23 Furthermore, like neo-classical
economics, a functional approach assumes that it is possible to assess
economically all costs and benefits of particular interactions through monetary
valuations,2 and based on these evaluations, the overall welfare can be
maximized through rational, value-neutral decisions25 However, the premises of
22. See generally MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION: PUBLIC
GOODS AND THE THEORY OF GROUPS (1965). Olson concludes that small and cohesive
interest groups are often more efficient and in a stronger position to influence the political
process than the general public.
23. For a discussion why functional/economic analysis "inadequately represents
the scope of intergenerational obligations," see James C. Wood, IntergenerationalEquity
and Climate Change, 8 GEO. INT'LENVTL L. Rnv. 293,297,315-321 (1996).
Intergenerational equity includes "the moral principle that no generation has priority
over another and the legal standard that there is equality among generations." Id. at 295.
Robert Elliot indicates however that it is not obvious that the right of future generations
are violated if today's generation rejects a conserving policy: it could be argued that
because today's policy choices determine "which of the multitude of possible people
become actual," another policy today would not make the same future generation better or
worse off but create another generation. INTRODUCTION TO ENVIRONMmENTAL ETHICS 1, 2-3
(Robert. Elliot ed., 1995). An utilitarian approach on the other hand would not take into
account which particular individuals might or might not exist in the future but focus on the
amount of all possible happiness the future may contain. Id. at 3. Concerning the issue of
future generations see generally PETER SALADIN & CHRISTOPH ANDREAS ZENGER, RECHTE
KONFrIGER GENERATIONEN (1988); PHIUPPE SANDS, Protecting Future Generations:
Precedent and Practicalities, FYURE GENERATIONS & INTERNATIONAL LAw 83-92
(Emmanuel Agius & Salvino Busuttil eds. 1998); EDrT BROwN WEISS, IN FAIRNESS TO
FUTURE GENERATIONS: INTERNATIONAL LAW, COMMON PATRIMONY, AND INTER-
GENERATIONALEQUITY (1989); Edith Brown Weiss, OurRights and Obligationsto Future
Generationsfor the Environment, 84 AM. J. INTL L. 198, 199 (1990).
24. Duxbury, supranote 18, at 5.
25. Jeremy Bentham tried to develop a rational system of calculation (felicific
calculus) to measure objectively benefits and costs of a certain decision. He elaborated
seven criteria with which the total amount of pleasure and reluctance and thus the social or
collective value of a decision or activity can be evaluated. See J. BENTHAM, AN
INTRODUCTION TO THE PRINCIPLES OF MORALS AND LEGISLATION 38-41 (Oxford 1996)
(1789). However, this attempt is generally criticized as impossible. See, e.g., HOppE, supra
note 12, at 131-41; Otfried Hdffe, EINFOHRUNG IN DIE UTILITARISTISCHE ET=K, 7, 41-43
(Otfried H6ffe ed., 1992 Or ridiculous. See KARL MARX, DAS KAPITAL, 1. BAND, 636-
37 n. 63 (MEW XXIII, Berlin 1984)(4th ed. 1890) (who writes that if he would have the
courage of his friend Heinrich Heine, he would call "Mr. Jeremy a genius of bourgeois
stupidity" for believing with the "most naive dryness" that the modem English petit
bourgeois personifies the ordinary man whose utility-evaluation represents the utility of
everybody in the world.)
Today, it is generally argued that--absent transaction costs--a competitive market
would take these value-neutral decisions and lead to an optimal result maximizing the
overall interest of the society. Thereby, this overall interest is measured by aggregation, in
520 Arizona Journalof Internationaland Comparative Law Vol 15,No. 2 1998
this "objective new stream" 26 overlook the following facts: (1) people and states
do not always make objectively rational choices in the context of wealth
maximization, 27 (2) not all costs and benefits can be evaluated and quantified
economically,2 (3) information deficits may preclude the determination and
achievement of the best or most efficient outcome, 29 (4) there is no objective,
scientific and value-neutral welfare optimum,30 and (5) purely mechanical,
value-neutral decisions are impossible.
Because of these limits, a functional analysis is unable to determine the
content of sovereignty in detail.3 ' However, a functional approach may advance
our understanding of how legal rules can affect the way people behave. 32 By
requiring a precise analysis and definition of the problems33 and illuminating the
basic forces that are at work, 34 it may yield greater insight into the issue of
sovereignty, reveal deficiencies of certain concepts, and help to better understand
problems. Thus, the purpose of a functional approach and the use of economic
tools are not to represent reality, but to give basic awareness of how people and
other words, the summing up of all individual interests, while these interests are measured
through the willingness to pay. This of course neglects that the willingness to pay for a
widget not only depends of the appreciation of this widget, but also of the wealth of the
buyer and seller. Generally one should never forget that there is no objective, scientific
and value neutral welfare optimum, but that this optimum always depends on value-
judgments and value-assumptions. See ALFRED ENDRES, UMWELTOKONOMIE: EiNE
EINFIHtuNG 24-30 (1994). For a criticism of the value-neutrality assumption in
intergenerational issues. See Wood, supra note 23, at 318-19.
26. Jason Mark Anderman, Swimming the New Stream: The DisjunctionsBetween
and Within Popularand Academic InternationalLaw, 6 DUKE J. COMP. & INT'L L. 193,
294 (1996).
27. Id. at 300.
28. For a critical assessment of the possibilities to use a uniform monetary
valuation to determine all utility and benefits, see Neil Duxbury, Law, Markets and
Valuation, 61 BROOK. L. REV. 657 (1995); Cass R. Sunstein, Incommensurability and
Valuation in Law, 92 MICH. L. REv. 779 (1994); Steven Kelman, Cost-Benefit Analysis:
An Ethical Critique, REGULATION, Jan.-Feb. 1981, at 33, 36-40. Concerning the problems
of measuring the economic value of the environment, see Frank B. Cross, Natural
Resource Damage Valuation, 42 VAND. L. REV. 269 (1989); PETER S. MENELL &
RICHARD B. STEWART, ENVIRONMENTAL LAW AND POLICY 81-101 (1994) [hereinafter
MENELL & STEWART].
30. ENDRES, supra note 25, at 173.
31. Similarly, because of their limits, game theory and other economic tools
which are used by a functional approach "are not powerful enough to tell us the precise
effect of particular laws." DOUGLAS G. BAIRD ET.AL, GAME THEORY AND THE LAW 268
(1994).
32. Duxbury, supra note 18, at 5 and 12-13.
33. HOFFE, supra note 12, at 355.
34. BAIRD, ET AL., supra note 31, at 7.
states interact.3 s Des3ite their limitations, they may enable a rational comparison
of different concepts. 6 Therefore, while the final determination of the content of
sovereignty cannot be made through a functional analysis, such an analysis may
be able to indicate more generally that an understanding of sovereignty merely as
freedom and independence would be inefficient and therefore is unsatisfactory
and undesirable. It may show that states-if acting rationally to increase their or
their citizen's welfare-have an interest in cooperating, and that, therefore, they
should be willing to renounce claims to absolute freedom and autonomy.
B. Cooperation
This article is based on a broad understanding of cooperation:

cooperation conceived of as the opposite of acting autonomously. There are
different forms, intensities, and stages of cooperation. Some entail close
collaboration, for example, in the investigation of problems, in the research for
means and measures to solve these problems, and in the adoption and
enforcement of such measures. Others merely signify that certain activities are
coordinated or that decisions are not made independently and unilaterally, but
that the interests of others are taken into account. Cooperation therefore implies
the rejection of claims to be fully free and independent, and implies instead a
sharing of certain authority, competence, or power.
C. International Order as Allocation of Jurisdiction and Power
The international order can be understood as an allocation of

prescriptive, jurisdictional, and enforcement power-and "sovereignty" as
describing the position of a state within that international order and its relation
with other states. It therefore describes the sum of all rights and obligations the
international system has allocated to a state.37 If sovereignty is viewed as an
35. Duxbury, supra note 18, at 13. See also POSNER, supra note 9, at 15-16
(indicating that theory that sought faithfully to reproduce the complexity of the empirical
world would not be a theory able to explain something, but a description).
36. HOFFE, supra note 12, at 427.
37. Thomas M. Franck has suggested that "sovereignty is the loci of the
formation of rights and duties generally recognized as establishing and implementing
entitlements, distributions and obligations." Richard B. Bilder, Perspectives on
Sovereignty in the Current Context: An American Viewpoint, 20 Can.-U.S. L.J. 9, 11
(1994); For a similar understanding of sovereignty as rights and obligations of a state
within the international system, see Joel P. Trachtman, Reflections on the Nature of the
State: Sovereignty, Power and Responsibility, 20 CAN.-U.S. L.J. 399 (1994); Sir
Humphrey Waldock, General Course on Public International Law, 106 RECUEIL DES
522 Arizona Journalof Internationaland ComparativeLaw Vol 15, No. 2 1998
"allocation of power and responsibility," 3 permanent sovereignty over natural

resources 39 would be the sum of these rights and obligations with regard to the
use of a state's natural recourses. In order to determine what amount of power and
responsibility should be allocated to each state, a functional analysis would
evaluate the efficiency of different allocations. In other words, to examine how
the authority should be allocated 40among the states one has "to evaluate the
possible efficiency of sovereignty."
This article focuses on the question of whether a functional approach
would regard sovereignty merely as independence and freedom or whether it
would include an obligation to cooperate. Therefore, a full and equal distribution
of jurisdiction and power is chosen as a starting point. Full distribution means
that all jurisdiction and power is apportioned among the states and that there are
no other obligations than the one to respect the rights of the others. Equal
distribution means that each state has the same amount of jurisdiction and power.
If all jurisdiction and power is allocated among the states, the states' sovereignty
would not include other obligations than the respect of the rights of the other
states and thus would not include a notion of cooperation: the states are fully free
and independent to use their power and jurisdiction as long as they do not
infringe upon the sovereignty of the other states.4 1 Cooperation, on the other
hand, implies a reduction of that freedom and independence: in cooperating, the
states accept to take into account the interests of other states, to give up the
COURS 1, 156 (1962-I); Individual Opinion by Judge Alvarez, The Corfu Channel Case,
1949 I.C.J. 4 No.39, at 43.
Of course it could also be argued that sovereignty describes only one element of that
position, namely the states' freedom. However, this would be only a semantic difference,
as the ultimately interesting thing is the position of the state within the international order
as a whole, which under this other terminology would include sovereignty and obligations.
The relevant point is, that the state's overall position always includes rights and
obligations, and that rational states would rather prefer an overall position that embraces a
duty to cooperate than one that is based merely on independence and freedom.
38. Trachtman, supra note 37, at 400.
39. For a short description of the history and content of the principle of
permanent sovereignty over natural resources, see Perrez, supra note 3, at 1190-1197.
41. Such a situation of full and equal distribution of jurisdiction to prescribe, and
power to enforce, reflects the traditional understanding of international law. In reality, the
states are, of course, unequal in political, economic, and military wealth and power; "such
differences and inequalities need not, however, extend to the standing of States in the eyes
of the law" and the "equality of States is reflected in the principle of the sovereign equality
of all States." Arthur Watts, The International Rule of Law, 36 GERMAN YIL 5, 30-31
(1993). For a ,critique of such "formal equality," indicating that equality that is merely
formal may further factual inequalities, see Pio Caroni, Ungleiches Recht fUr alle. Vom
Werden des ungleichen und nicht systemwidrigen Privatrechts, in ZENTRUM UND
PERIPHERIE, ZUSAMMENHANGE, FRAGMENTIERUNGEN, NEUANSATZE: FESTSCHRIFr FOR
RICHARD BAUMLIN 107-33 (Roland Herzog ed., 1992).
The Efficiency of Cooperation:A Function Analysis of Sovereignty
authority to take decisions independently and unilaterally and to coordinate their

activities, their jurisdiction and their enforcement with other states. Cooperation
therefore involves a reallocation of the initially fully distributed authority and the
reallocated authority is shared among the cooperating states.
As indicated, a full distribution of all authority is chosen initially, thus
ordering independent and non-cooperative states. A functional analysis will now
determine whether such an allocation is efficient. The Coase Theorem indicates
that, absent transaction costs, such an initial allocation of jurisdiction and power
would not affect efficiency: if the initial allocation of authority is not efficient,
the states could engage in reallocative transactions leading to a more efficient
outcome. 42 Thus, if the states are not content with the full distribution of
jurisdiction and power and prefer a system with cooperation among themselves,
they would reallocate the initially fully-distributed authority. They can start to
cooperate and thereby accept that some authority should be shared. This result
would indicate that it is preferable and more efficient if the position of the states
within the international order is not a position of mere freedom and independence
but includes an element of cooperation. In other words, this result would indicate
that an understanding of sovereignty as including a responsibility to cooperate is
more efficient than the traditional understanding of sovereignty as mere
independence. The next section therefore investigates whether rational states
would be content with a full and equal distribution of jurisdiction and
enforcement power, or whether they would rather engage in reallocative
transactions that would result in a cooperative outcome.
MI. DISSATISFACTION OVER FULL AND

EQUAL DISTRIBUTION OF JURISDICTION AND POWER
As indicated above, the functional or economic approach of this article

assumes that the states have one primary goal which is the maximization of their
and their citizens' welfare. Consequently, the possibility to increase this welfare
or to prevent a loss of welfare would motivate rational states to change an initial
order of full and equal distribution of jurisdiction and power, and to reallocate
authority in order to cooperate. This article focuses on the following two ways in
which states can maximize welfare: (1) they can solve problems more efficiently,
and (2) they can improve or safeguard their position in the international context.
By improving their position and increasing their influence and power, states may
enlarge their ability to maximize their welfare. By preventing a threat to their
actual beneficial position, they may safeguard their position and prevent a loss of
welfare. This chapter shows that these goals can be reached primarily through
cooperation.
42. Ronald H. Coase, The Problem of Social Costs, 3 J.L. & ECON. 1 (1960),
reprintedin R. H. COASE, THE FIRM, THE MARKET, AND THE LAw 95-156 (1988).
524 Arizona JournalofInternationaland ComparativeLaw Vol. 15, No. 2 1998
A. Increase in Efficiency
There are several reasons why a state alone cannot resolve problems
effectively, making cooperation desirable. In today's interdependent world, states
have to cooperate in order to deal efficiently with problems of social policy,
economic development, or use of natural resources. These problems cannot be
solved by the states independently, as each unilateral measure impacts other
states. This article focuses on environmental issues. The following subchapter
will describe two sources of environmental concern and then discuss briefly the
different problems created directly or indirectly by these sources, analyzing the
reasons why cooperation is necessary in order to deal with them efficiently.
1. Sources of Environmental Concern
a.Processes
Manufacturing and other processes of producing goods and services

generally involve pollution and other forms of environmental degradation.
Therefore, states may adopt process standards limiting water and air pollution or
incentive-based policies to reduce environmental pollution from processes, 43 and
states may regulate services that involve environmental harm like cave tourism,4
river-rafting, 45 heli-skiing, 46 or flights over beautiful scenery. 47 In the
43. For a brief discussion of different incentive-based policies, see for examples
Robert F. Blomquist, Models and Metaphors for Encouraging Responsible Private
Management of TransboundaryToxic Substances Risk: Toward a Theory of International
Incentive-Based Environmental Experimentation, 18 U. PA. J. INT'L EcON. L. 507, 540-
562 (1997).
44. See Tourismus und Naturschutz liegen sich in den Haaren, DER BUND, Aug.
5, 1997, at 32, describing a conflict between local environmental and scientific groups and
a commercial trekking team that organizes tours in the "H61loch" in the Canton Schwyz in
Switzerland, which at 170 km length is Europe's longest cave system. The environmental
and scientific groups claim that the tourism organized by the trekking team causes a
commercialization and overuse of the "H61loch" which ultimately harms the sensitive
cave system. Concerning the threat to and destruction of caves due to caving, see National
Caving Association, Protect Our Caves <http://web.ukonline.co.uk/ nca/protect.html.>
45. For such regulation limiting the river-rafting on the Colorado River in the
Grand Canyon, see, e.g., 36 C.F.R. § 7.4 (b) (1997) (requiring permits for river trips in the
Grand Canyon); Wilderness Pub. Rights Fund v. Kleppe, 608 F.2d 1250 (9th Cir. 1979)
(holding that the Park Service could limit the river rafting in the Grand Canyon by
allocating certain amount of permits to commercial and noncommercial users).
46. Thus, environmental groups require in Bem, Switzerland, a more restrictive
regulation of heli-skiing in the Bernese Alps and a reduction of the places where heli-
international context, the adoption of stringent process standards may create a

competitive disadvantage for the national industry, and states may therefore have
an incentive to prescribe measures that are less costly for their industries. This
"race to the bottom" may lead to an adoption of less than optimal environmental
48
standards.
The adverse environmental effects of processes do not, of course, remain
within the jurisdiction of one state but cross the border. Processes taking place in
state A may produce transboundary pollution affecting the environment of state
B, shared resources, or the global commons. Such situations may result in
inadequate environmental standards, as a state may fail to adopt stringent
measures when the negative effects occur beyond its jurisdiction. In the case of
transboundary pollution affecting neighboring states or shared resources, the
states concerned have a direct interest in intervening in order to prevent or reduce
the transboundary pollution. Such an interest is not so obvious when the global
commons are contaminated. The risk that no adequate measures 49 are taken to
prevent the degradation of the commons is therefore even bigger.
b. Products
Products may pose an undue risk to health and safety of consumers and
third parties or they-may adversely affect the environment. 0 Therefore, states
have an interest to regulate and restrict the production, importation, or use of
goods perceived as dangerous or harmful: states may prescribe labeling or
specific product standards like maximum levels of pesticides in products or
technical minimal standards for cars. Furthermore, states may regulate the sale
of products, for example, by requiring that certain beverages be sold in reusable
skiing is allowed. See, e.g., Heliskiing:Keine Gespriiche, BERNER TAGwACHT, October 3,

1997, at 15.
47. In response to growing concern over the continuous degradation of natural
sounds in the Grand Canyon, Congress passed the 1987 Overflights Act restricting tourist
flights, based on which special flight rules for the Grand Canyon were adopted. 14 C.F.R.
§ 91 (1997). For a discussion of the continued degradation of natural sounds in Grand
Canyon, see Grand Canyon River Guides, Review of National Park Service Report to
Congress <http://www.rhinonet.comtquiet/npsrep.html>
48. See part II.A.2.b. for a further discussion of the "race to the bottom."
49. See part III.A.2.c. for a discussion of the "tragedy of commons."
50. Richard B. Stewart, InternationalTrade and Environment: Lessons From the
Federal Experience, 49 WASH. & LEE L. REv. 1329, 1334 (1992) [hereinafter:
InternationalTrade and Environment].
containers. 5' Likewise, they may tax products perceived 53

as environmentally
harmful;5 2 or prohibit their production, or importation.
The different states may adopt different regulations and standards due to
different priorities, different risk-sensibility, or different influences of conflicting
interests in the decision-making process. If different standards are adopted,
producers have to inform themselves about the regulations of each state to which
their products would be exported, and the products would have to be adapted to
the different standards. This would diminish the possibility to realize economies
of scale of large production. Thus, if different states adopt different regulations
and standards, this would increase the costs of information, production, and
transaction.54 But the different standards not only create trade barriers, they also
increase the costs for control and enforcement, as each state would have to
control the products brought into its jurisdiction and enforce its standards
separately.
2. Reasons for Collaboration
As indicated above, processes and products are the sources of multiple

environmental concerns. These concerns involve interstate interdependencies and
are created either directly by these sources, or indirectly when states adopt
domestic measures to meet environmental problems caused by the two sources.
They include pollution of the environment, negative transboundary effects into
other states, degradation of the commons, conflict with aims to preserve the
environment, competitive concerns, and considerations of economies of scale.
51. The European Court of Justice upheld a Danish law prescribing a deposit-and-
return system on beer containers. Case 302/86, Commission v. Denmark (Re Disposable
Beer Cans).
52. A study of the Swiss National Fund concluded that an "ecologic" tax reform
that would tax energy instead of labour would have positive effects for the Swiss
economy. Die doppelte Dividende der 6kosteuer. Ein Ja der Wissenschaft zur
ikologischen Steuerreform, N-uE ZORCHER ZErrUNG, Aug. 13, 1997, at 17.
53. Thus, a Dutch law prohibiting the importation of apples with pesticide levels
exceeding certain tolerance levels, was upheld by the European Court of Justice. see
Criminal Proceedings against Albert Heijn BV, Case 94/83, 1984 E.C.R. 3263, at 3280,
para. 19; similarly, the U.S. excludes imports of food products containing more pesticides
than tolerated by U.S. legislation. Stewart, InternationalTrade and Environment, supra
note 50, at 1334; on the other hand, an EC ban on U.S. beef from cattle that was treated
with bovine growth hormone was overruled by a WTO panel. See USA-Sieg im
Hormonstreit, Der Bund, Aug. 20, 1997, at 4; WTO Overrules Europe's Ban on U.S.
Hormone-TreatedBeef, N. Y. TIMES, May 9, 1997, at Al.
54. The elimination of technical trade barriers due to different environmental
legislation in the Member States was a base for the first environmental legislation of the
EC. see: Commission v. Italy (Sulphur Content of Fuels), Case 92/79, 1980 ECR 1115, at
1122, para. 8.
Transboundary pollution into other states and into the commons 55 and the
overuse and degradation of the common resources 56 obviously give rise to
conflicts between the interests of the different states concerned and therefore may7
require cooperation. Other issues like preservation and other psychic spillovers,
competitive concerns, 58 or consideration of economies of scale 59 may make
cooperation efficient although they do not necessarily involve transboundary
pollution.
Focusing on these four issues-externalities, the race to the bottom, the
tragedy of commons and the possibility of economies of scales-the following
sections will indicate why cooperation is desirable to solve these different
concerns.
a. Externalities
Externalities are effects of activities that are imposed on others for better
or worse, without those others paying or being compensated for these benefits or
costs.60 Thus, there are positive and negative externalities. An example of
positive externalities would be the increase of the value of a parcel of land after
the opening of a railway line that connects the land to a nearby city. While the
landowner benefits from the increased value of his property, the railway
company receives nothing, although it was the railway company and not the land
owner who caused the price increase for the land. The standard example of
negative externalities is that of spillovers like air pollution that are emitted from 61
a
factory having harmful effects on the surrounding environment and population.
While the factory benefits from the ability to produce its goods without paying
for pollution reduction measures, the population bears the cost of the pollution:
they may have health problems due to the pollution, the value of their property
may decrease, and so forth.
The processes of producing goods and services, the trade in products and
waste, and the use of natural resources all produce externalities that impact the
environment. 62 Virtually every process involves environmental degradation like
air or water pollution, noise pollution, or production of toxic wastes. The
products themselves may pose an undue risk to health and safety of consumers
55. See infra, part IIA.2.a.

56. See infra, part I.A.2.c.
57. See infra text accompanying notes 72-78.
58. See infra, part EI.A.2.b.
59. See infra, part mI.A.2.d.
60. SAMUEl.SON & NORDHAUS, supra note 14, at 310-15, 736. see also TOM
TIETENBERG, ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS 51-54 (3rd ed. 1992).
61. See, e.g., Coase, supra note 42.
62. Stewart, supra note 50, at 1332.
and third parties, or their use may adversely affect the environment. The use of
natural resources finally may entail externalities like deforestation, killing of
animals, reduction of biodiversity, and contribution to climate change. In the
international context of environmental policy, different types of troublesome
externalities can be distinguished 63-pollution or physical spillovers, social
externalities, psychic spillovers (nonuse value), resource externalities (use value),
and competitiveness externalities.
Pollution or physical spillovers are the classical case of transboundary
pollution. Activities in state A may have a negative effect on the environment in
state B. Thus, smelting plants in Canada may emit sulfur dioxide fumes causing
damage in the United States,6 the air pollution of industries in Mexico reduces the
visibility in the Big Bend National Park in Texas, 65 the construction of a dam for a
power station may reduce or change the water supply or alter the water quality in
downstream states,6 or the67construction of a canal may change groundwater level
reducing crop production.
Social externalities occur in the international context when social stress
and tension resulting from environmental degradation spill over to other states or
create international instability. The destruction of the ecosystem and environment
may force the inhabitants of a region to leave their homelands and try to settle
somewhere else. Environmental refugees are a tpical example of social
externalities of activities destroying the environment,6 others include despair and
63. Id. at 1340; I have added social externalities to his list of externalities.
64. Trail Smelter (U.S. v. Can.), (U.S. v. Can.), 3 R.I.A.A. 1911 (1941).
65. Sanford E. Gaines, Bridges to a Better Environment: Building Cross-Border
Institutionsfor EnvironmentalImprovement in the U.S.-Mexican BorderArea, 12 ARIZ. J.
INT'L & COMP. L. 429, 437-8 (1995); Royal C. Gardner, Taking the Principle of Just
Compensation Abroad: Private Property Rights, National Sovereignty, and the Cost of
Environmental Protection, 65 U. CIN. L. R',. 539, text accompanying notes 248-250
(1997); see also Dora 0. Tovar and Jan Gilbreath, Clean Energy Along the Texas-Mexico
Border: Building Consensus in Protecting Air Quality, <http://www.utexas.edu/
lbj/usmex/Carbon.html>; Ralph M. Haurit, EmissionsFrom Mexican Coal Plant Highlight
TransboundaryProblems <http://www.latinolink.com/news/borc 1223.html>
66. Thus, when Turkey dammed the Euphrates River in 1990 for a month in order
to fill the reservoir behind the Atattrk dam, the river was reduced to a streamlet for Syria
and Iraq. Furthermore, Iraq is afraid that Turkish dams will increase the salinity of the
waters of Euphrates. See Heidi Hinz-Karadeniz, Vom Krieg um 01 zum Krieg um Wasser,
in: KURDISTAN, PoLITISCHE PERSPEKTIVEN IN EINEM GETEILTEN LAND 203, 207-08 (Hinz-
Karadeniz & Stoodt eds., 1994).
67. Hungary is concerned that this will be one of the effects of the construction of
the Gabcikovo-Nagymaros Project on the Danube. See e.g., Paul R. Williams,
International Environmental Dispute Resolution: The Dispute Between Slovakia and
Hungary Concerning Construction of the Gabcikovo and Nagymaros Dams, 19 COLUM. J.
OFENvTL. L. 1, 14-18 (1994).
68. See infra, notes 274, 294-303 and accompanying text.
extremism that is furthered by environmental degradation, 69 thereby contributing

7
to social instability and tensions and threatening the stability of a region. 0
Psychic spillovers arise when an event in state A causes negative
psychic effects like dissatisfaction or anger in state B. 71 There seem to be two
different kinds of psychic spillovers: preservation externalities 72 and "moral"
externalities. Preservation externalities concern the existence value of something,
which is the value that may be attributed to the mere existence and preservation
of something. The existence value includes the satisfaction about the existence of
a species and the satisfaction about the fact that others or future generations will
be able to enjoy nature. 73 The destruction of a beautiful landscape or the
extinction of a species in state A may deprive inhabitants of state B of the
satisfaction of knowing that those resources exist. There is no need that the
inhabitants of B will ever visit A in order to see the beautiful landscape or
observe the endangered species, the mere existence and preservation of these
resources may be enough to enjoy the resources. "Moral" externalities do not
concern the existence or preservation of a resource, but the dissatisfaction that
something perceived as morally negative occurs. Thus, bull fighting in Spain may
raise such strong moral feelings in England that people are willing to contribute
money to finance a full-page advertisement in the FinancialTimes denouncing
this activity. 74 Likewise, the outrage in Europe at the use of painful leghold traps
to catch wild animals for furs led the European Union to ban the importation of
furs originating in countries that allow these traps. 75 All this creates negative
feelings and dissatisfaction without compensation. Psychic spillovers raise two
difficulties: First, it is even more difficult to calculate the nonuse value of a
resource than the use value or the damage caused by physic spillovers. 76 Second,
69. DANIEL HILLEL, RiVERS OF EDEN at ix (1994).

70. For a description of the tensions resulting from environmental stress, like
shortage of water in the Middle East, see Id.
71. Concerning psychic spillovers, see generally Esty, supra note 10, at 638-47;
Wouter P. J. Wils, Subsidiarityand EC Environmental Policy: Taking People's Concerns
Seriously, 6 J. ENvTL L. 85, 89-90.
73. Wils, supra note 71, at 90.
74. Id. at 90.
75. Council Regulation 3254/91of 4 November 1991 prohibiting the use of
leghold traps in the Community and the introduction into the Community of pelts and
manufactured goods of certain wild animal species originating in countries which catch
them by means of leghold traps or trapping methods which do not meet international
humane trapping standards. 34 OJ, L 308/1 (1991). For a discussion of this regulation and
its GATI/WTO conformity, see Peter V. Michaus, Note, Caught in a Trap: The European
Union Leghold Trap Debate, 6 MINN. J. GLoBAL TRADE 355 (1997). See also Animal
Rights Resource Site by the Fur-Bearer Defenders, Is the European Fur Ban in Force or
Not? < http://envirolink.orglarrsnews/furban.html>
76. See supra note 28.
psychic spillovers concern typically a collective good and it is impossible to

provide the benefits of preservation or of respecting the moral values only to
77
those willing to pay for it. Hence, a typical free-rider situation exists.78
While psychic spillovers relate to the nonuse value of resources,
resource externalities involve the use value of natural resources, in other words,
the value of all possible uses like consumption, wildlife watching, or hiking in
nature.79 Resource externalities may occur when resources are exploited in such a
wasteful and non-sustainable fashion that the resource stock is run down at an
excessive rate depriving others of the benefits of future use.80 The oil that is used
today cannot be utilized by future generations, the seas that are overfished cannot
provide fish in the future, the rain forest that is cut down cannot support its
biodiversity and absorb carbon dioxide, and a beautiful landscape that is
destroyed cannot be visited.
Competitive externalities relate to the interdependencies between
environmental regulation and economic concerns. The adoption of economic
protection measures normally involves costs for the industry -- thus, state B with
low environmental standards may attract industry from state A with high
environmental standards, creating a loss of industry and wealth for state A. 81
This may result in a "race to the bottom," where both states compete for industry
by lowering their environmental standard to undesirable laxity.
82 The next part will
deal more thoroughly with these competitive externalities.
While the existence of physical, psychic and social externalities are not
contested, there are some economic arguments challenging the presence of
resource and competitive externalities. With regard to competitive externalities, it
is said that the competition for industry by lowering environmental standards in
fact is a competition to desirability.83 Concerning resource externalities, it may be
argued that there is no economically sound reason why resources should be used
today in a wasteful manner if the lost future benefits would be greater than the
benefits of present consumption." Shortsightedness, corruption, or some other

78. For a description of the free-rider problem, see MENELL & STEWART, supra
note 28, at 60.
79. Stewart, supra note 50, at 1340; Wils, supra note 71, at 89-90.
81. For a further description of this competition among jurisdictions for industry,
see Vicki Been, "Exit" as a Constraint on Land Use Exactions: Rethinking the
UnconstitutionalConditionsDoctrine, 91 COLUM. L. REV.473, 506-528 (1991).
82. See infra, part III.A.2.b.
83. Richard L. Revesz, Rehabilitating Interstate Competition: Rethinking the
"Race-to-the-Bottom" Rationale for Federal Environmental Regulation, 67 N.Y.U. L.
Rev. 1210, 1217 (1992). For a discussion of this argument, see infra text accompanying
notes 170-205.
85
form of institutional failure must be invoked to explain such behavior.
Therefore, the existence of resource externalities is difficult to explain on
standard economic assumptions. However, because resource externalities involve
the value of future use of a resource, this value is often underestimated or even
impossible to assess and therefore not adequately reflected in today's price.
Furthermore, some benefits of preservation include positive externalities for
which the owner would not be compensated: The owner of a parcel of rain forest
normally does receive no money for the absorption of carbon dioxide or the
satisfaction of others about the preservation of the forest, but she will gain
concrete economic benefits from logging and selling the trees.86 This may explain
why resources are used today in a non-sustainable fashion depriving thereby
future beneficial use and thus creating externalities for future generations.
Although these five different types of externalities can be distinguished
according to their effects-whether they cause competitive disadvantages, social
tensions, or a physical alteration of resources, or whether they affect the use or
nonuse value of resources-they are not independent of each other and often
occur cumulatively. One activity may cause several types of externalities: for
example, the cutting down of rain forests may involve all five types of
externalities. It may cause physical spillovers through its contribution to climate
change.8 7 The logging of rain forests not only sets free carbon dioxide, but also
reduces the world's capacity to absorb carbon dioxide and therefore contributes to
the increase of climate change gases in the atmosphere.8 8 This directly (by setting
85. Id.
86. However, there are some attempts to combine ecology with economy by
organizing "eco-tourism" which makes preservation profitable. One such example is the
"Rain Forest Aerial Tram" in Costa Rica: Donald Perry constructed this "Aerial Tram"
through the rain forest of Costa Rica near the National Park Braulio Carrillo. The "Aerial
Tram" attracts tourists and thereby makes preservation profitable. See Werner Catrina,
Okologie und Okonomie in Harmonie: eine Gondelbahn statt Holzfller im Regenwald,
DER BUND, Aug. 26, 1997, at 2.
87. The rain forests are one of the most important factors influencing our climate.
E. G. NIsBET, GLOBALE UMWELTVERANDERUNGEN: URSACHEN, FOLGEN,
HANDLUNGSMOGLICHKEITEN 61 (1994). The rain forests influence the climate in several
ways: in transpiring water, the rain forests emit energy in the form of latent warmth and
thus contribute to the cooling of the earth. Id. at 32, 46, 63; they stabilize the earth climate
and reduce the differences of temperature between the equator and the poles. Id. at 64; and
they absorb C02 which is one of the major greenhouse gases. Id. at 84-5. See also T.C.
WHITMORE, TROPISCHE REGENWALDER: EINE EINFOHRUNG 235-36 (1993).
88. The rain forests are one of the major absorbers of C02. Furthermore, the
burning of the wood of the rain forests emits the there accumulated C02, and the
destruction of the rain forests increases the oxidation of the humus which again sets C02
free. See Geroge M. Woodwell, Das Kohlendioxid-Problem, in ATMOSPHARE, KLIMA,
UMWELT, 160, 169-72 (Paul J. Crutzen, 2nd ed., 1996); the rain forests are not only one of
the major absorber of C02, they also store the C02 for hundreds of years and thus are a
"trap" for the C02. See JOSEPH H. REICHHOLF, DER TROPISCHE REGENWALD: DIE
532 Arizona JournalofInternationaland ComparativeLaw VoL 15, No. 2 1998
free carbon dioxide) and indirectly (by reducing the world's capacity to absorb
carbon dioxide) leads to a physical alteration of the atmosphere and thus to a
physical externality. Rain forests are often cut down in a non-sustainable manner.
In this way, the habitats of many endangered species are destroyed, species go
extinct, and biodiversity is lost.89 The lumbering of rain forests may, therefore,
preclude the future use of resources without providing for adequate compensation
and thus creates resource externalities. Psychic spillovers occur because there are
many persons all over the world who would be satisfied if the wonderful
environment of the rain forests would be preserved, even 9
if they would never 91
ever visit such forests. Similarly, the extinction of species 0 and of civilizations,
which may be the result of the destruction of rain forest, causes emotional
discomfort all over the world and may be rejected as morally wrong. 92 If state A
allows its rain forests to be cut down without prescribing any environmentally
protective measures, competitiveness externalities occur-there is increased
pressure on state B to adopt a similarly lax policy to prevent all the logging
industry from moving to A. Finally, social externalities may be the result of
uncontrolled logging as the destruction of the rain forests 93 destroys civilizations
and produces social tensions and environmental refugees.
Externality problems can also be viewed as problems of conflicting uses
of, or interests in, the same resources. The atmosphere whose composition is
OKOBIOLOGIE DES ARTENREICHSTEN NATURRAUMS DER ERDE 25 (1990). Thus, the

deforestation further increases the greenhouse effect. See PETER HUPFER, UNSERE
UMWELT: DAS KLIMA, GLOBALE UND LOKALE ASPEKTE 120 (1996).
89. The majority of the world's species are living in the rain forests. As many of
these species live in a narrowly encircled areas, even the destruction of a small part of a
rain forest may extinct a large number of species. NIsBET, supra note 87, at 142-43. The
rain forests are the "world's biggest and most diverse chemical laboratory" and they
provide a genetic pool that contains millions of recipes that may be helpful for the humans
to combat diseases like AIDS and on which the survival of mankind may once depend.
REICHHOLF, supra note 88, at 188-89. The destruction of the rain forests therefore not only
reduces the biodiversity and threatens the survival of our cultivated plants originating from
the rain forests, it also impedes the possibility to discover new invaluable genetic
resources NISBET, supra note 87, at 298. Concerning biodiversity and rain forests, see
generally JOHN TERBORGH, DIVERSITY AND T1-E TROPICAL RAIN FOREST (1992).
90. The deforestation in Central America even has effects on the bird population
in the United States and Canada, where the migratory birds that used to winter in the
forests of Central America become more and more rare. NISBET, supra note 87, at 131.
91. Concerning the destruction of civilization, see WHITMORE, supra note 87, at
222.
92. A person with an environmental ethic that contributes values and rights not
only to human beings but also to individual animals, plants or rocks, and to the whole
ecosystem, independent of their utility for mankind, would suffer under the excessive
destruction of rain forests. For a short overview of non human-centered environmental
ethics, see Elliot, supra note 23, at 8-12.
93. See WTrrMORE, supra note 87, at 222.
altered by the cutting down of rain forests is "used" by all states. The beauty of
the rain forest and the existence of species that would be rendered extinct with
the destruction of their habitats in the rain forest is a benefit enjoyed and thus
"used" by those who suffer from the psychic spillovers all over the world.
Similarly, industries in one state are using the air to discharge their waste in the
form of pollution, thereby precluding the use and benefit of clean air in
neighboring states; the construction of a dam or a canal entails the use of the
waters in a manner that reduces possible utilization in the downstream states.
Therefore, it may be argued that negative externalities do not exist, but that there
is merely a problem of common use. For example, the undesired air pollution is
not only caused by the industry-the process that sends smoke up the stack-but
similarly by the interest of the neighbors to have the benefits of clean air.94 It
could even be argued that it is not the industry but its neighbors who cause the
externalities: the fact that the neighbors desire to use clean air, prohibits the
factories from using the air for discharging the wastes resulting from their
activities. 95 This is of course a very human-centered argument and it i nores the
proposition that the environment may have proper rights as well, 9 and that
94. STEPHEN BREYER, REGULATION AND ITS REFORMS, 25 (1982).

95. See Coase, supra note 42, at 96.
96. See generally Christopher D. Stone, Should Trees Have Standing?-Toward
Legal Rightsfor Natural Objects, 45 S. CAL. L. REv. 450 (1972). There are different lines
of non human-centered environmental ethics which accept that the nature has rights
independent of its utility for humankind: rights could be extended from humans to non-
human animals with the neurophysiological capacity for experiencing well-being and its
opposite; rights could be extended further to all animals or living things independent of
their psychological capacities; finally, rights could even be attributed to all natural entities,
irrespective of whether or not they are living. Another approach would contribute values
and rights not to the individual animals, plants or rocks, but to the wholes, such as the
biosphere itself and ecosystems. See Elliot, supra note 23, at 8-12; C. H. Krijnen, Haben
Tiere Rechte, 83 A.R.S.P. 369 (1997) (arguing that while the natural function of the sense
organs and the "consciousness" of the animals is focused merely on the preservation of the
themselves and the species, the humans as "double-nature" are not only absorbed by self-
preservation. Only humans enjoy the freedom to act beyond the aim of self-preservation,
but such a freedom and "possibility to choose" is a prerequisite for being a subject of law.
Animals therefore have neither subjective rights nor obligations, but humans have because
of their rights and obligations towards animals); see also P. CAVALIERI & P. SINGER, THE
GREAT APE PROJECT. EQUALITY BEYOND HUMANITY (1993) (claiming that all big monkeys,
which include humans, chimpanzee, gorillas, and orangutans, should be included in the
community of the equals and have the following human rights: right to life, protection of
individual freedom, prohibition of torture); Michael W. Schr6fer, Menschenaffen und
Rechte, 83 ARSP 397 (1997) (discussing Cavalieris and Singers claim under a biological,
theological and humanistic approach); Jens Petersen, Anthropozentrik und Okozentrik im
Umweltrecht, 83 ARSP 361 (1997) (discussing different anthropocentric and eco-centric
approaches in the environmental law).
perhaps each alteration of the ecosystem needs justification. Whatever the

argument, it is obvious that there are conflicting interests that must be reconciled.
In the international context, one possible solution to the problem of
externalities is common regulation of the activities producing negative
externalities, either under a traditional command and control approach or with
economic incentives. 97 Plainly, this requires cooperation among the states
concerned. Another possibility would be the creation of private remedies for
those adversely affected by externalities by establishing a liability regime under
which the authors of harmful externalities are liable. 98 This again would be
possible only through cooperation. The states would not only have to agree on
the liability rules, they would have to collaborate in enforcing these rules.
However, a liability regime raises several difficulties. How should non-
economic damages be compensated? How should psychic externalities like the
dissatisfaction over the destruction of a beautiful landscape be economically
quantified? And who would defend the interests of future generations?"
97. Typical examples for an international "command and control" approach are
the MARPOL (Convention for the Prevention of Pollution from Ships of 1973, 12 I.L.M.
1319 (1974). The MARPOL is an international instrument adopted and regularly amended
by the International Maritime Organization (IMO), prescribing rules, technical standards
and specific requirements for the reduction and elimination of marine pollution by oil and
other harmful substances from vessels. For a brief overview of the MARPOL, see SANDS,
supra note 2, at 326-30.
An example for an approach to deal with environmental externalities internationally
with economic incentives is provided by the HNS-Convention (International Convention
on Liability and Compensation for Damage in Connection with the Carriage of Hazardous
and Noxious Substances by Sea, 35 I.L.M. 1415 (1996): Regulation 2 of Annex II
prescribes that the annual contribution to the HNS-Fund, a fund that will cover damages
caused through the carriage of dangerous goods by sea, depends for each substance on the
damages it has caused during the last years. Thus, the more often a certain substance is
involved in pollution of the marine environment, the higher is its annual contribution to
the HNS-Fund. This should prevent an incentive to prevent such incidents. For a brief
overview of the HNS-Convention, see Franz Xaver Perrez, Die Haftung beim Transport
gefdhrlicher Gilter zur See, STROM UND SEE 2-95, at 41-43; The International Maritime
Organization (IMO), HNS Convention adopted by IMO Conference,
<http:www.imo.org./imo/briefing/796.htm>.
98. An example of an attempt to solve international pollution problems-or at least
one aspect of pollution problems, namely the aspect of damages-through a liability regime
is the regime created by the International Convention on Civil Liability for Oil Pollution
Damage, 9 I.L.M. 45(1970) and the International Convention on the Establishment of an
International Fund for Compensation for Oil Pollution Damage. 11 .L.M. 284 (1972).
While the Civil Liability Convention governs the liability of the ship-owners for oil
pollution damage, the Fund Convention establishes a supplementary regime for
compensating victims when the Compensation under the Civil Liability Convention is
inadequate.
99. One possibility would be to create a guardian representing the interests of
future generations. See, e.g. Christopher D. Stone, Safeguarding Future Generations, in
Furthermore, even a strict liability regime may not ensure that harmful
externalities are always compensated, as the total costs of enforcement may be
higher than the damage. 1°° Both issues of damages and causation may give rise
to very complex questions,101 especially in cases involving the diffuse nature of
environmental harms, large numbers of authors or accumulation of risks over
12
time. 0
It could be argued, that neither common regulation nor the establishment
of a liability regime is necessary to solve efficiently the problem of externalities,
as the actors in a free system would resolve the problems through their individual
behavior. Under conditions of perfect competition and nonexistence of
transaction costs, conflicting uses of a resource would result in transactions
reflecting the most efficient use possible of the resource in question, and
externalities would not frustrate efficient resource allocation. 1° 3 As indicated
above, externalities and spillovers are problems of reciprocal nature and one can
argue, that "[tlo avoid the harm to B would inflict harm on A.""1 4 Thus, under an
economic analysis, the "problem is to avoid the more serious harm."'105 Examples
that illustrate this reciprocal situation include straying cattle destroying the crops
on neighboring land and a factory that contaminates the stream with pollutants
killing the fishes. 1° 6 These examples indicate, that an efficient resource allocation
is possible, even if the author of negative externalities is not liable for the damage
caused. If the value of a crop is greater than the costs of building a fence to
prevent the cattle from straying, the farmer would be willing to pay for the
construction of such a fence; and if the damage caused to the fishing industry by
FUTuRE GENERATIONS & INTERNATIONAL LAW 65-79 (Emmanuel Agius and Salvino
Busuttil eds, 1998). Concerning rights of future generations, see generallysupra,note 23.
100. If there are 100 persons suffering each a damage of 1 due to negative
externalities, and if the costs for enforcement would be 50, none of the victims would try
to enforce compensation for the damage individually. And if coordination among the
victims is difficult and costly, compensation will not occur although the total damage of
100 is bigger than the enforcement costs of 50.
101. See Hans Rudolf Trdeb, Neuere Entwicklungen im Schweizerischen
Umweltschutzrecht, 7 ScHwEiZERiscHE ZErrscHRiFT FOR INTERNATIONALES UND
EUROPAISCHES REcHT 177, 198-200 (1997).
102. Stewart, supra note 50, at 1342-3; Christopher D. Stone, Beyond Rio:
"Insuring" Against Global Warming, 86 Am. J. Int'l L. 445, 465-66 (1992); Wood, supra
note 23, at 300-01.
103. Coase, supra note 42. The central elements of the Coasean argumentation
include not only the existence of perfect competition and absence of transaction costs, but
also the clear assignment of property rights. Theoretically, the question how the property
rights are allocated depends on a value judgment and does not influence the Pareto-
optimal outcome. See generally ENDRES, supra note 25, at 33-40.
104. Coase, supra note 42, at 96. See also supra, accompanying text to notes 94
and 95.
105. Id. at 96.
106. Id.
536 Arizona Journalof Internationaland ComparativeLaw Vol. 15,No. 2 1998
the factory's water pollution is greater than the costs of pollution reduction
measures, then fisherwomen could engage in negotiations with the factory in
order to pay the factory to reduce pollution. The harmful effect to the resources
would be prevented without common regulation or liability regime. On the other
hand, if the costs for the fence or the pollution control exceed the value of the
crop or the fish, it would be "inefficient" to build a fence or to adopt pollution
prevention measures. Thus, the conflicts between farmer and cattle-raiser and
between factory and fisherwomen would be solved most efficiently through
negotiations between the parties involved. Common regulation or the
establishment of a liability regime are not necessary and may even lead to an
undesirable result. 107
States can be treated like individual actors,108 and the Coasean model
can also be applied to interstate externalities. If a factory in state A causes
environmental damage in state B, the two states do not necessarily have to agree
to regulate the processes leading to the undesired pollution or to adopt a liability
regime for interstate externalities. If the damage in B exceeds the costs to prevent
pollution, state B would be willing to pay for pollution prevention measures in A.
If the pollution prevention costs would exceed the damages in B, one could °9 argue
that the endurance of the pollution is more efficient than its prohibition.'
The Coasean model is not without flaws." 0 While its assumption of
nonexistence of transaction costs is essential, in reality numerous complicated
transactions would be necessary in order to reach the most efficient outcome and
107. Regulation could-under a purely economic approach-lead to a "inefficient"

outcome: if the value of the fish caught by the fisherwomen is lower than the costs of
pollution prevention measures, a regulation that prohibits pollution leads to the adoption
of pollution measures although it would be "more efficient" to compensate the
fisherwomen for their loss. Furthermore, if the costs of pollution prevention measures are
too high, the factory would stop its production, even if the goods produced would be more
valuable than the fish caught. However, such an analysis neglects other values than the
price of fish and the costs of pollution control. Therefore, the prohibition of pollution may
be preferable to compensation even if the pollution control measures are more costly than
the compensation of the fisherwomen for their loss would be (for a critique of the Coasean
model, see text accompanying notes 111-120).
The establishment of liability regimes on the other hand would not necessarily lead to
an "inefficient" outcome, but determines who has to pay compensation: if the factory is
liable for the pollution it has produced, it would either compensate the fisherwomen or
adopt pollution control measures, depending what is cheaper.
108. IMMANUEL KANT, ZUM EWIGEN FRIEDEN. EIN PHILOSOPHISCHER ENTWURT, 16
(Rudolf Malter ed., Reclam, 1984) (1795).
109. This is of course only an efficiency argument neglecting issues like equity and
fairness or the right of state B not to suffer damages without compensation.
110. For a discussion of the deficiencies of the Coase Theorem, see generally
ENDRES, supra note 25, at 41-54.
huge transaction costs do exist."1 Thus, it is not clear whether in reality Coasean
transactions would occur to solve externality problems and whether their
outcome would be the most efficient. Then, in focusing merely on the
relationship between users and resources, the Coasean model neglects the social
impacts on the relations between those who compete for the resource,11 2 and 1it3
completely disregards equity questions like wealth distribution and poverty.
But even if one only focuses on the goal to prevent environmental degradation,
issues of poverty should not be neglected: "poverty destroys not only people, but
also the environment they inhabit."' 1 4 Poverty leads to an overuse and destruction
of natural resources. 115 Ambitious developing projects to fight poverty often
involve catastrophic ecological consequences, 116 and the adoption of expensive
pollution reduction measures requires a certain wealth. There is, therefore, a
linkage between poverty and environmental degradation, and poverty is thus 17
implicated not only by social, but also by environmental concerns."
Furthermore, problems of inter-temporal externalities" s and spillovers into the
commons 119 are difficult to resolve through Coasean transactions, as it is not
clear who would have to represent the interests of future generations or of the
commons. Finally, as multiple cases of externalities exist, states would probably
prefer to adopt a general rule regulating all similar cases instead of negotiating
each individual case separately.
Because of the existence of transaction and information costs, because
of the multiple existence of spillovers, because of problems of spillovers into
commons and inter-temporal externalities, and because of its neglect of social
and equity questions, the Coasean solution to solve problems of environmental
111. Franqois du Bois, Water Rights and the Limits of Environmental Law, 6 J.
ENVTL. L. 73, at 77 (1994); ENDRES, supra note 25, at 49-54. According to Coase,
transaction costs include the costs of identifying the participants, the costs of negotiating,
and the costs of concluding, carrying out and supervision the result of the negotiation.
ENDRES, supra note 25, at 36. If those who suffer the externalities have to organize, the
transaction costs can easily cause a collective action problem and no negotiations will
occur. See e.g., RuSSEL HARDIN, COLLECTrVE ACTION 54 (1982).
112. du Bois, supra note 111, at 74-75.
113. Id. at77.
114. Id. at78.
115. Karl-Werner Brand, Probleme und Potentiale einer Neubestimmung des
Projekts der Moderne unter dem Leitbild "nachhaltigeEntwicklung ". Zur Einfiihrung, in:
NACHHALTIGE ENTWICKLUNG: EINE HERAUSFORDERUNG AN DIE SOZIOLOGIE 9 (1997).
116. Id. at 9. For the impacts of gigantic dam projects, see, e.g., GOLDSMITH
ET.AL., THE SOCIAL AND ENVIRONMENTAL EFFECTS OF LARGE DAMS (1984) VOLUME I:
OVERVIEW (1984)
117. du Bois, supra note 11, at 77-78.
118. Concerning the problems of future generations, see supra note 23.
119. Concerning the problems with commons, see part III.A.2.c.
538 Arizona Journalof Internationaland ComparativeLaw Vol 15,No. 2 1998
externalities through bargaining is impracticable. 120 However, the Coasean model

is able to give an important insight: if there would be no common regulation,
actors would solve externality problems under conditions of perfect competition
and nonexistence of transaction costs by negotiating and thus cooperating. In
other words, it can be concluded that rational actors would cooperate to solve
externality problems, either by regulating the activities leading to externalities,
by establishing a liability regime, or by entering into Coasean bargaining.
Similarly rational states would cooperate to solve externality problems. In doing
so, they would accept the reallocation of some of their initially equally and fully
distributed power and jurisdiction, for example, in accepting either that state B
does not have the right to cause spillovers to state A, or that state A may pay for
pollution reduction measures in state B. To solve the problem of externalities,
rational states would not maintain each state as free and independent --
externalities just are the proof that independence does not exist -- but they would
accept that cooperation is necessary and therefore include in sovereignty a
cooperative element.
b. Competitive Concerns, Race to the Bottom
Regulation prescribing technical standards and measures aimed to

reduce environmental degradation caused in the process of producing goods and
services may impose heavy costs on the industry. Although the imposition of
these costs is justified under an economic point of view-they internalize
externalities and, thus, reduce market failure-states have an interest to lessen
these costs by lowering their environmental standards. In prescribing lax
environmental standards, a state may provide to its industry a competitive
advantage vis-A-vis foreign industries. Furthermore, by reducing the production
cost in its jurisdiction, a state may attract new industry and thus contribute to the
creation of jobs, the growth of its economy and an increase in tax revenues. This
may cause the other states to lower their environmental standards in turn, as the
other states have a desire to eliminate the competitive disadvantage of their
industry and want to prevent a loss of industry. This race of lowering the
environmental requirements in order to attract industry and create competitive
advantages121
or eliminate competitive disadvantages is generally called "race to the
bottom."'
The "race to the bottom" problem has two correlated, but distinct sides,
States may engage in a race to the bottom in order to compete for industry, but
states may also adopt lax environmental standards in order to prevent a
120. du Bois therefore concludes, that the Coasean solution of perfect competition
"offers little value." du Bois, supranote 11, at 78.
121. Apparently, this term was introduced by William L. Cary, Federalism and
CorporateLaw: Reflections upon Delaware, 83 YALE L.J. 663, 666 (1974).
competitive disadvantage to industries in neighboring states. 122 This distinction

seems to be relevant. There may be a situation where a state has no interest in
attracting new industry. Likewise, because of high relocation costs, there may be
no risk that the existing industry would leave a state if its environmental
standards are raised and thus become more costly than in other states. Even then,
a state may have an interest that the industry operating from its territory has the
best economic and regulatory local condition, and thus a competitive advantage
over industries operating in other states.'2 For example, a state may hope that the
growth in exportation would increase tax revenues and the wealth and welfare of
its citizen. Thus, the "race to the bottom" involves a regulatory competition
among states either for industry or for more competitive local conditions for the
existing industry. This regulative competition that may lead to a "race to the
bottom" is due to the international competition among the industry that induces it
to seek the best producing conditions.
The "race to the bottom" is a form of the prisoner's dilemma. The
prisoner's dilemma involves a situation where individuals because of their non-
cooperation follow a strategy leading to a Pareto-inferior outcome, 124 while they
could have reached a better result through cooperation.125 In the classical
example, two prisoners who have committed armed robbery are interrogated
separately. Because of the weak evidence available, the prisoners could be
sentenced only to one year of prison for the illegal possession of weapons if
neither confesses. In order to get a confession by one of the prisoners, the
prosecution offers to let the confessing prisoner free if the other does not also
confess. With a confession of one of the prisoners, the non-confessing prisoner
122. WILLIAM R. LOWRY, THE DIMENSIONS OF FEDERALSIM: STATE GOVERNMENTS

AND POLLUTION CONTROLPOLICIES 14 (1992). Thus, before accepting the protection of the
environment as an aim of the EC-legislation, one of the reasons to adopt environmental
legislation on a Community level was to prevent distortion of competition caused by
different environmental burdens upon undertakings. See Commission v. Italy, supra note
54.
123. See Joel P. Trachtman, InternationalRegulatory Competition, Externalization
and Jurisdiction,34 HARv. INT'L L.J. 47, 59 n.51 (1993).
124. An outcome is Pareto-inferior if at least one person could be made better off
without making another worse off, thus the overall benefit could be increased through
reallocation or transaction between the participants; an outcome is Pareto-optimal if no
change in circumstances can make one actor better off without making someone else
worse off. See SAMUELSON & NORDHAUS, supra note 14, at 149 and 729; ENDRES, supra
note 25, at 10; MENELL & STEWART, supra note 28, at 47-49.
125. For a general description of the prisoner's dilemma, see SAMUELSON &
NORDHAUS, supra note 14, at 209-210; DREW FUDENBERG & JEAN TIROLE, GAME THEORY
9-10 (1991); HARDIN, supra note 11, at 2-3; Duxbury, Games and Rules, supra note 18,
at 4. For an application of the prisoner's dilemma situation to environmental regulation
and a description of an "environmental Regulator's Dilemma," see Kirsten H. Engel, State
Environmental Standard-Setting: Is There a "Race" and Is It "to the Bottom?," 48
HASTINGS L.J. 271, 304-05 (1997).
could be sentenced to ten years of prison. If both confess, each will receive a
sentence of five years. Confronted with the possible alternatives, each of the
prisoners has the dominant strategy12 to confess although both would be better
off if neither had confessed. Even if the two prisoners could communicate
secretly, inform each other of their strategies and enter into an agreement not to
confess, there would be an incentive to defect and to confess. First, none of the
prisoners could be sure that the other does not break the agreement; second, if
the other would keep the agreement, the defecting prisoner is even better off. The
only possibility to reach the Pareto-optimal outcome would be to enter into an
efiforceable agreement or into an agreement providing for damages.
Professor Stewart has perfectly illustrated in an example how non-
cooperation between states may lead to a prisoner's dilemma and a "race to the
bottom."' 127 His example involves states A and B. Three levels of environmental
protection are possible. While state B is a highly industrialized country, state A
is less industrialized. State B would prefer environmental protection of level
three as long as the resulting competitive disadvantage of its industry would not
be bigger than level one. State A would like to adopt only level two protection,
furthermore, in order to attract new industry, A desires that its industry has a
competitive advantage of level one. If State B does not know the priorities of A,
it will adopt standard two, state A then will adopt environmental protection
measures of level one. 12 In this theoretical example, the two states adopt
suboptimal environmental standards. If the states would have exchanged
information, they would have adopted the more stringent environmental
protection preferred by both states while the distribution of competitive
advantages would have been the same. Thus, the "race to the bottom" is a result
of lack of cooperation among the states: if the states would cooperate, they could
maximize social welfare by agreeing on the optimal standards.
]t is generally assumed that the best way to prevent a "race to the
bottom" is to cooperate and to harmonize the environmental standards.
Theoretically, uniform standards prevent states from competing with
environmental legislation for industry. Uniform standards also seem to guarantee
that no industry has a competitive advantage because of lower environmental
protection costs. This assumes that the harmonized standards are enforced with
the same strength in all states concerned. In practice however, there may be huge
differences in the enforcement of the same or similar standards by different
states. The different enforcement of equal or similar standards may lead to
different environmental protection and different costs for the industry. 130 Such a
126. A dominant strategy is a strategy that is the "best strategy no matter what
strategy the otherplayerfollows." See SAMUELSON & NORDHAUS, supra note 14, at 207.
128. Id.
129. Revesz, supra note 83, at 1216.
reality of "equal but different" thus may lead again to a "race to the bottom."
Therefore, even uniform standards do not prevent fully the race to the bottom: in
practice there would still be the possibility to compete for industry by lax
enforcement of the agreed upon standards. In order to prevent any competition
between states for industry and any distortion of the competition among
industries on the base of environmental protection, not only the standards but also
the enforcement would have to be harmonized.
However, cooperation to prevent an undesired "race to the bottom" does
not have to lead to uniform standards. As the example of Stewart indicates, the
optimal result may be reached through adoption of different standards. Not the
different preferences in environmental protection lead to a "race to the bottom,"
but the incertitude about the behavior of the other state or states. Therefore, the
correct answer to the "race to the bottom" is the exchange of information about
preferences, the coordination of policy and the cooperation. Under a merely 1 31
economic view, the adoption of different standards may be the best result.
However, the costs of exchanging information and negotiating the optimal
standards may be so high that the adoption of uniform standards on the whole
would be more efficient. In such a situation, the high transaction costs and not the
"race to the bottom" are the reasons for the uniform standards.
Cooperation to prevent a "race to the bottom" can also require financial,
technical and institutional assistance. Imagine a state A that is not able or willing
to carry the part of the costs of environmental protection measures that will fall
on the state (for example, costs for monitoring and enforcement). Furthermore, A
would not object if its industry would have to comply with the same standards as
the industry in state B. B on the other hand would prefer the adoption of high
environmental standards involving high compliance costs for its industry and
substantial governmental expenses. B however is only willing to adopt such
measures if its industry does not have to suffer a competitive disadvantage. In
such a case, B would not adopt the preferred standards because of A who is not
willing to carry the costs accompanying these standards. This situation could be
solved by cooperation. If B provides financial, technical and institutional
assistance to A, A would be willing to adopt the same standards as B. Such an
outcome may be preferable to B than the adoption of low standards in A and B.
Some authors suggest that the "race to the bottom" argument lacks a
reliable empirical 132 and theoretical basis, 133 and that, therefore, the "race to the
131. Under an environmental view, it may be questioned why the nature in one
jurisdiction should be less protected than the nature in the other. It may be argued, that the
different preferences for environmental standards are the result of a political failure and
that only the most stringent uniform standards are, able to adequately protect the
environment.
132. Judith M. Dean, Trade and the Environment: A Survey of the Literature, in
WORLD BANK DIscussION PAPERS: INTERNATIONAL TRADE AND THE ENVIRONMNENT 15,
27 (Patrick Low ed., 1992); Stewart, supra note 17, at 2061-84; Stewart, supra note 50, at
bottom" justification for interstate or international harmonization of

environmental standards is "theoretically suspect."' 1 4 There are basically three
challenges to the "race to the bottom" argument: (1) it may be argued that
competition between states does not exist; (2) it may be maintained that even if
such competition would exist, it is not necessarily affected by differences in
environmental regulation; and (3) it may be claimed that even if there is a
competition among states based on environmental regulation, such competition is
desirable and leads to a "race to desirability."
i. There is No Competition Among States
Some authors question the idea that there is competition among states
comparable to the competition between firms producing the same goods.", It is
held that "concerns about competitiveness are, as an empirical matter, almost
completely unfounded."13 6 While an economy with very little international trade
should be immune to competitive pressure, it seems that an economy fully
integrated in the world market should be sensible to changes in other economies.
Krugman, however, argues that the states do not compete with other states for
economic growth and rising living standards, but participate in the success and
economic: growth of each other. While the states may "sell products that compete
with each other, [they] are also each other's main export markets and each other's
main suppliers of useful imports." 137 Thus, when state A does well, state B will
benefit. A's purchase power will increase and A thus provides B with a larger
market. Furthermore, A will be able to serve B with goods of superior quality at
lower prices. 13 As correct as this argument may be-in the light of the traditional
theory of comparative advantage 139 and from an overall economical perspective-
states, cities, and communes in fact do compete with each other for industry,
jobs, and exportation possibilities. Even if this may be shortsighted, the rhetoric
1355 and n.87; Edith Brown Weiss, Environmentally Sustainable Competitiveness: A

Comment, 102 YALE L.J. 2123, 2132 and n.52 (1993).
133. Revesz, supra note 83; Roger Van den Bergh, Economic Criteria for
Applying the Subsidiarity Principle in European Environmental Law: The "Race-To-The-
Bottom" and "Interstate Externalities" Rationales; Comment on Richard L. Revesz, 4-7
unpublished (on file with the author).
134. Richard L. Revesz, Federalism and Interstate Environmental Externalities,
144 U. PA. L. REv. 2341, 2414 (1996)
135. See Paul Krugman, Competitiveness: A Dangerous Obsession, 73 FOREIGN
AFF., Mar.-Apr. 1994, at 28-44.
136. Id. at 30.
137. kld at 34.
138. Id.
139. Lester C. Thurow, Microchips, Not Potato Chips, 73 FOREIGN AFFAIRS, Jul.-
Aug. 1994, at 191.
of competitiveness of states has become pervasive among politicians and opinion

leaders throughout the world. 14° And even if state B would also benefit indirectly
from new industry in A, B would prefer to have the new industry, the new jobs
and the new productivity itself. Differences in regulations affecting the industry
result in differences of its competitiveness in the global market. 141 Therefore, as
the states realize that their regulation is a "factor endowment" that affects their
industry's competitiveness in international trade, they increasingly compete by
attempting to provide their industry with the most favorable regulatory
conditions. 42 There are many examples of how states compete for industry. For
example, by adopting a "corporation-friendly" regulatory regime, Delaware has
become the leading U.S. state of incorporation; 143 with their lax regulations, off-
shore islands attract massive banking industry from all over the world; 144 and
with an insurance against exportation risks, Switzerland is supporting Swiss
companies' delivery of generators and parts for turbines for China's gigantic dam
project for the Yantze-River. 145 And it is not surprising that the U.S. government
was very pleased when Saudi Arabia decided to order new airplanes for six
billion dollars from U.S. producers
146
and not from European, as this order meant
U.S. gains in jobs and income.
Although it can hardly be compared with the competition among two
firms producing the same goods, competition between states occurs. This
competition among states for industry and for comparative advantages of their
industry "is a derivative of, and is based upon, competition among firms," which
140. Krugman, supra note 135, at 28, referring to Jacques Delors (p. 28-9)
President Clinton (p. 29), and a waste list of literature (ftnt. 1).
142. Id. at 51-52, 59.
143. See, e.g., Cary, supra note 121. The competition among the U.S. states is so
intense that it was even compared with a "Second Civil War" (Been, supra note 81, at 513
and n.188; ENGEL, supranote 125, at 319 and n.134).
144. See, e.g., Geoffrey W. Smith, Competition in the EuropeanFinancialServices
Industry: The Free Movement of CapitalVersus the Regulation of Money Laundering, 13
U. PA. J.INT'L Bus. L. 101, 126 (1992) (describing that beginning in the 1960s, U.S.
corporations established off-shore finance subsidiaries to avoid U.S. tax laws, which led to
a tremendous growth of the off-shore banking industry) See generally David D. Beazer,
The Mystique of "Going Offshore," UTAH Bus. J. 19 (1996) (concerning off-shore
banking).
145. This project not only may create several hundred jobs in Switzerland, it will
also dislocate 1.8 million people in China and most probably involve massive human
rights violations. See Zurich mtisste umgesiedelt werden, DER BUND, Aug. 5, 1997, at 13.
Several NGOs have launched a campaign not to grant the exportation risk insurance for
this and similar projects. See, e.g., Peter Bosshard, Grosskraftwerke -wie welter?, EvB-
MAGAZIN 4/97, at 3. See also infra, ftnts 284-297 and accompanying text.
146. Clyde v. Prestowitz, Jr., Playing to Win, 73 FOREIGN AFF., Jul.-Aug. 1994, at
544 Arizona Journalof Internationaland Comparative Law VoL 15,No. 2 1998
147
causes the firms to seek the best conditions and lowest-cost means to produce.
Yet, in contrast to a competition between firms, competition between states will
not result in the going out of business of one of the countries.148 From an overall
perspective, states even benefit from the economic growth of the other states.
Thus the "competition" among the states that stimulates and furthers
productivity, 149 may result in a beneficial and desirable outcome. This argument,
that competition may result in a "race to desirability" is discussed further below
in part C.
ii. EnvironmentalRegulation has No Impact on Industry Location
The "race to the bottom" phenomenon rests on the premises that

measures to limit negative environmental externalities increase production costs,
compliance with higher environmental standards decreases the competitiveness
of the industry, and that, therefore, the adoption of higher standards incites the
industry to move to a jurisdiction with lower standards. 10 Thus, it may be argued
that differences in environmental regulations do not necessarily affect
competitiveness negatively 51 and that stringent environmental regulations are not
a significant factor in industrial location decisions. While some examples of
industrial flight can be found, 152 it seems doubtful whether differences in
environmental requirements have a significant impact on international 55
53
competitiveness. Productivity studies, trade studies,'54 location studies,
surveys of manufacturing plant executives, 156 agregate studies, 15' and studies
using establishment-level microeconomic data' indicate that differences in
147. Trachtman, supra note 123, at 60 n.53.

148. Krugman, supra note 135, at 31.
149. Thurow, supra note 139, at 190 (concludes that "those who don't compete
abroad won't be productive at home.").
150. Van den Bergh, supra not 133.
151. Stringent environmental measures may also enhance the "overall productive
efficiency" and thus increase the competitiveness. See Stewart, supra note 17, at 2050.
See also M. PORTER, THE COMPmTrTvE ADVANTAGE OF NATiONS 47 (1990) (indicating
that product standards and environmental control can be a stimulus to innovations which
may result in competitive advantage).
152. Thus, furniture finishing operations were relocated from Los Angeles to
Tiajuana, Mexico, and some pollution-intensive industry in the chemical sector seems to
have moved from North America to Southeast Asia. Stewart, supra note 50, at 1355, with
references.
153. Id. at 2072-74.
154. Id. at 2074-77.
155. Id. at 2077-79.
156. ENGEL, supra note 125, at 323-24.
157. Id. at 324-32.
158. Id. at 332-37.
59
environmental regulation have little or no effect on the location of industry.'
Based on the empirical evidence available at this time one has to conclude 160 that
environmental standards are only a minor factor in firm location decisions.
The race to the bottom problem, however, does not deal primarily with
the question of whether industries relocate to regions with lower environmental
standards, but whether states adopt lower standards under such threat or with
such justification. For that, it is enough that the threat of industry reallocation to
escape tougher environmental regulation is believed and taken seriously and that
states behave as if relocation might occur. 161 Consequently, the belief in the "race
to the bottom" is more important than the fact that industry indeed would always
follow the lowest environmental standard. As it is more important that an
argument be believed than well founded, and, as the way an argument is
perceived by the majority may be more influential for the outcome of the policy- 63
162
making process than its soundness, "appearance and belief become reality."
A "race to the bottom," then, may occur even if the perceived threat of industry
relocation would not have happened.164
Most U.S. environmental groups, much of U.S. industry, and many
politicians believe in the "race to the bottom."' 65 In order to prevent stringent
regulation, industries often threaten to move out of a jurisdiction when that
jurisdiction adopts or reviews environmental standards. 166 A recent study by
159. Stewart,, supra note 17, at 2084. ENGEL, supra note 125, at 337.
160. Weiss, supra note 132, at 2132-22, with references; Dean, supra note 132, at
27; Engel, supranote 125, at 321 with references in n. 144; LOWRY, supra note 122, at 13;
Stewart, supra note 17, at 2071-79 with references; Stewart, supra note 50, at 1355.
There are also studies indicating that there is a relationship between environmental
regulation and location decisions of the industry, see Environmental Regulation Force
Commerce Out of State, Business Roundtable Survey Finds, 22 [Current Developments]
Envtl Rep. (BNA) 1839 (Nov. 29, 1991). This study made by the California Business
Roundtable who might have an interest in this result in order to influence future adoption
of environmental standards is however not very persuasive.
161. LOWRY, supra note 122, at 13.
162. Some scholars therefore conclude that it is necessary to analyze the
statements by powerful politicians and journalists as they are perceived by the vast
majority in order to understand how political support for major legislation and policy
decisions is cultivated. See Anderman, supra note 26, at 297.
164. See ENGEL, supra note 125, at 338; LoWRY, supra note 122, at 13.
165. Stewart, supra note 17, at 2047. Thus e.g., Rudolf Scharping, Chairman of the
Social Democratic Party of Germany, concludes his comment on Krugman's article on
competitiveness with a statement that many governments do cut environmental regulations
because of the contest for attracting or holding onto international companies. Rudolf
Scharping, Rule-based Competition,73 FOREIGN AFI., Jul.-Aug. 1994, at 193.
166. Thus, in Switzerland the chemical industry is lobbying at this moment
strongly against new legislation that would limit the use of gen-technology. One of their
main arguments is, that the adoption of this legislation would cause relocation of industry
546 Arizona Journalof Internationaland ComparativeLaw Vol.15,No. 2 1998
Kirsten H. Engel concluded that indeed a substantial number of states relaxed

their environmental standards in order to attract or retain industry.' 67 Thus,
although the assumption that industry follows the lowest and cheapest
environmental standards is not supported by empirical studies, the mere threat of
industry relocation seems to be a major force in the political decision-making
process. When a state adopts new environmental measures, it will normally not
be in the position to assess with certainty how much the new standards will in
fact influence location decisions of existing and new industry. Even knowing that
most often stringent environmental regulation will not be determinant for
industry location decisions, few politicians, legislators and regulators would want
to risk that just their decision to support strong regulation will result in industry
relocation. In such a situation of uncertainty, the perception of the possibility that
industry would leave a state if too-stringent measures are adopted is more
important than whether the industry would indeed relocate. 68 Hence, the "race to
the bottom" does occur although its assumption that industry
169
will follow the least
restrictive environmental legislation seems to be flawed.
iii. Race to Desirability
The last objection to the "race to the bottom" argument seems to be the
most fundamental. Professor Revesz maintains that competition among
jurisdictions will enhance the overall welfare, as it will "produce an efficient
allocation of industrial activity among the states," 170 and thus best satisfy the
preferences of the citizens. It has been argued that variations in national
environmental standards reflect national differences in social values and
assimilative capacity.' 71 While some may prefer higher environmental quality,
and a massive loss ofjobs. See Eine Stadt-zentrierteSP iberliessedas Land der SVP, DER
BUND, May 27, 1997, at 15. See also Engel, supra note 125, at 353.
167. Engel, supra note 125, at 340-347, 352.
168. Similarly, the perception of a prisoner's dilemma may be more important than
its existence. Peter B. Swire, The Race to Laxity and the Race to Undesirability:
Explaining Failures in Competition Among Jurisdictions in Environmental Law, in
CONSTRUCTING A NEw FEDERALISM: JURISDICITONAL COMPETENCE AND COMPETITION 67,
104(1996).
169. Or the "race to the bottom" occurs "because more lax environmental quality is
not made up for by the economic benefits of new firms." Engel, surpa note 125, at 338.
See the next subchapter for the discussion why the "race to the bottom" is a "race to
undesirability."
170. Revesz, supra note 83, at 1212.
171. A British official opposed the adoption by the European Community of
uniform technology-based water pollution discharge limitation by indicating that Italy
benefits from the amount of sunshine that it receives each year, therefore, the British
industry should be allowed to take similar advantage of the long coastline and the rapidly
others may prefer an increase in other benefits, for example, higher salaries.
Thus, everybody is better off if each jurisdiction-according to the values and
preferences of its citizens-is free either to attract or to deter industry with all its
benefits like wealth and jobs and disadvantages like pollution. Those who would
like to enjoy the "benefits of pollution" will move to jurisdictions with high
pollution and high economic wealth, those preferring a clean environment will
renounce the "benefits of pollution" and move to jurisdictions with high
standards. Not reflecting those differences in preferences and eliminating the
possibility to compete for industry would reduce social welfare, while tailoring
the environmental regulations to local circumstances and preferences would
improve it.1 72 This argument does not challenge the existence of the "race to the
bottom," but it does conclude that such a race is beneficial. Under Professor 173
Revesz's approach, the "race to the bottom" becomes a "race to desirability."
As powerful as this argument may be "within a model based on the
assumptions of neoclassical economics," 74 it weakens upon closer inspection.
First of all, it is not plausible, why in the example of Professor Stewart the
adoption of standards one and two should be more beneficial for the overall
welfare than the adoption of standards two and three.175 In this example, the "race
to the bottom" is clearly a "race to undesirability," as the states could have
adopted the preferred higher standards two and three without losing any industry.
Yet, there are further objections to the theory of a "race to desirability."
The "race to undesirability" and the "race to desirability" arguments
have two fundamentally distinct theoretical bases. While the "race to
desirability-argumentation is based on neoclassical economics, in other words,
the belief that perfect competition between rational self-interested parties
increases welfare, the "race to undesirability" argument is based on a game
theoretical approach that concludes that rational pursuit of self-interest may lead
to a Pareto-inferior outcome. 76 The game theory was developed to address
shortcomings of the traditional neoclassical economics and to introduce situations
with strategic behavior, 177 a return to neoclassical economics and its assumption
of a perfectly competitive market seems therefore to be a "conceptual step
flowing rivers of Britain. DAVID VOGEL, NATIONAL STYLES OF REGULATION:

ENVIRONMENTAL POLICY IN GREAT BRITAIN AND THE UNITED STATES 103 (1986).
172. Esty, supra note 10, at 606-07.
173. Swire, supra note 168, at 71.
174. Id. at 70. However, the propriety of basing legal policy on prescriptions
derived from neoclassical economics has been fundamentally put in question, see
DWORKING, supra note 11, at 237-289; S. Amin, Can Environmental ProblemsBe Subject
to Economic Calculations,?20 WORLD DEv. 523 (1992); du Bois, supra note 111, at 76-
78.
175. See supra note 127 and accompanying text.
176. See Engel, supra note 125, at 275-76, 310; Esty, supra note 10, at 629.
177. Engel, supra note 125, at 298-301 with references; SAMUELSON & NORDHAUS,
ECONOMICS, supra note 14, at 206-07.
548 Arizona Journalof Internationaland Comparative Law Vol 15,No. 2 1998
backwards."' 178 But as the market for firm location is imperfect because industry
and states could manifest the characteristics of monopoly or oligopoly, 179 and as
the participants act strategically,180 non-cooperative game theory as opposed to
neoclassical economics describes better the dynamics of environmental standard-
setting of states.18 1 The next paragraphs discuss further failures in the market for
industry location. These failures indicate that regulative competition does not
lead to a "race to desirability" and that cooperation seems desirable.
The "race to desirability" argument is based on the assumption that
those who suffer pollution also benefit of it, for example, by higher salary, jobs,
wealth, and so forth. Furthermore, those who suffer from environmental
degradation do so because of their preferences and their deliberate decision to
choose the benefits of economic wealth and not the benefits of environmental
quality. This assumption is based on two errors: (1) the willingness to pay for a
clean environment does not depend only on one's appreciation of a clean
environment and one's preferences, it also depends on one's purse,' 8 2 and (2) the
relationship between costs and benefits of pollution is not such that the benefits
from lax environmental standards necessarily flow back to those who suffer from
the resulting pollution and environmental degradation. First, the negative effects
of lax environmental standards often spill over into other states and into the
commons, thus, international externalities are created which distort a possible
"race to desirability." Similarly, lax environmental standards may create
intergenerational externalities, as they produce an undue ecological burden for
future generations. 8 3 But even when there are no international externalities, those
who suffer the pollution often do not enjoy its economic benefits equally. While
the poor and disadvantaged often bear a disproportionate share of environmental
costs, the wealthy benefit from the growth.18 4 Thus, the trade-off between
178. Engel, supra note 125, at 298.

179. Id. at 312-15, 355-56.
180. Id. at 357-59; Esty, supra note 10, at 630-31.
181. Engel, supra note 125, at 278, 375. Furthermore, several assumptions
necessary for the perfect competition model are wrong, see Engel, supra note 125, at 359-
367.
182. Thus, A who has $1,000,000, will probably be willing to pay more for clean
drinking water than B who has only $1. The fact that A is willing to pay more for clean
drinking water than B does not necessarily imply a different appreciation of clean water, it
may merely indicate that A is wealthier. See generally ENDRES, supra note 25, at 24-26.
183. Concerning future generations, see generallysupra,note 23.
184. Weiss, supra note 132, at 2127. See also the multiple studies and articles on
Environmental Justice, e.g., UNITED CHURCH OF CHRIST COMMISSION FOR RACIAL JUSTICE,
Toxic WAsTES AND RACE IN THE U.S. (1987) (which is probably the most prominent
research of the U.S. in this field; it analyzed the demographic characteristics of areas
surrounding commercial hazardous waste facilities and concluded that there is a
significant correlation between the number of such facilities and the percentage of
minorities living in its neighborhood. see id. at 13-4 and 41-4); BENJAMIN A. GOLDMAN &
suffering from pollution and enjoying wealth does not take place. On the
contrary, it seems rather that the costs and benefits of low environmental
protection are distributed unequally and that those who benefit most from
environmental degradation can afford it to live in a clean and healthy
environment. This phenomenon that lax environmental standards enable the
industry to cause pollution that primarily affects groups within the same state that
do not profit from the economic benefits may be referred to as "selective
domestic externalization." 185 Hence, there is not a "race to desirability," but a
"race to externalities."
As indicated above, empirical evidence reveals that environmental
standards barely influence industry location decisions. 186 And recent studies
indicate that robust economic growth and development seems not to be found
more likely among states with relatively lax environmental policies. 18 7 However,
states do relax the environmental standards in order to attract industry, partly
because they believe in the "race to the bottom" despite contrary evidence, and
partly because there is always an uncertainty whether more stringent regulation
would cause industry relocation in this specific case, although it normally does
not.188 But if the states use environmental standards for competing for industry
while in fact the environmental standards are not relevant for industry location,
and if those who bear the costs of low environmental protection do not equally
enjoy its benefits, then there is no relation between "costs" and "benefits" of
environmental degradation,
89
and the "race to the bottom" is clearly a "race to
undesirability."1
Revesz's model assumes that states perform "perfect, costless and
immediate cost-benefit analyses" based on which they can measure "whether the
net effects of lowering environmental standards are positive (due to higher
LAURA FrrroN, Toxic WAsTEs AND RACE REvIsrrED 3 (1994) (which is an update of the
1987 study and comes to similar conclusions); Robert W. Collin, Review of the Legal
Literatureon EnvironmentalRacism, Environmental Equity, and Environmental Justice, 9
J. ENVTL. L. & LrrlG. 121 (1994) (giving an overview of the literature on Envrionmental
Justice); and Vicki Been and Francis Gupta, Coming to the Nuisance or Going to the
Barrios?A LongitudinalAnalysis of EnvironmentalJustice Claims, 24 ECOLOGY L.Q. 1
(1997) (the newest and most differentiated study on environmental justice, concluding that
while there are signs that siting processes of hazardous waste facilities seem to have had
disproportionate effects upon Hispanics, no such evidence seems to support similar
conclusions for African American Communities. However, today African Americans
seems to be overrepresented in host neighborhoods of such facilities, see id. at 9 and 33-
5).
186. See supra,text accompanying notes 150-160.
187. Revesz, supra note 83, at 1213 n.5.
188. See supra,text accompanying notes 165-168.
189. See Engel, supra note 125, at 338.
economic growth) or negative (due to greater pollution)"'19 and that the states
then make the decision which furthers most the overall interests and social
welfare of its citizens. However, states do not always pursue the welfare of all
their citizens equally. Political choices may be determined more by the self-
interests of organized groups and politicians than by the objective of maximizing
national welfare. 19' Industry interests groups confronted with large environmental
protection costs generally formulate their interests more forcefully than
individuals who might benefit from stringent environmental measures. 92 While
the industry probably will be able to calculate the compliance costs of a certain
environmental measure, the benefits for the individuals may be vague and
difficult to evaluate. 193 Thus, the industry knows exactly what it has to gain or to
lose, it has a very concrete incentive to fight environmental regulation and can
easily evaluate the payback of the costs of political participation. Furthermore,
because of its smaller number, the industry faces fewer free-rider problems than
the individuals interested in a clean environment. Therefore, the industry will be 194
more successful in influencing the outcome of the decision-making process.
Moreover, most often it is impossible to measure objectively which policies will
in fact maximize social welfare. The determination of the value of environmental
protection involves huge measurement problems and it is probably impossible to
assess a monetary value of a clean environment. 195 Furthermore, interests of
future generations who risk inheritance of environmental damage without an
adequate benefit are only imperfectly represented in the current decision-making
process. 196 If the environmental damage is irreparable, it may be very difficult to
justify it under a cost-benefit analysis. 97 "In addition to inter-temporal
externalities, interstate externalities may falsify the decision-making process.", 98
Spillovers into other jurisdictions or into the commons will be an incentive to
adopt laxer standards, as the costs of the pollution are borne by others. Thus, it is
190. Swire, supra note 168, at 71. See also Esty, supra note 10, at 631-32 (arguing
"that the assumption of perfect information that undergirds perfect competition theories
cannot be squared with the reality of environmental policymaking.")
191. Ernst-Ulrich Petersmann, Trade Policy, Environmental Policy and the GATT:
Why Trade Rules and Environmental Rules Should Be Mutually Consistent, 46
AusSENwiRTscHAFr 197, 206 (1991), quoted from Brown Weiss, supra note 132, at 2139.
192. Esty, supra note 10, at 633 (indicates, that "[p]olitical decisionmakers are
often free to accept money and other benefits from polluters in return for advantageous
regulatory decisions," while it is extremely difficult to unify the mass of voters who are
negatively affected). Furthermore, in order to be elected, it may be more important to
have a full campaign purse than defending the majority's interests. See also supra note 22.
194. Swire, supra note 168, at 100-03.
196. Swire, supra note 168, at 100. See also supra note 99.
197. Weiss, supra note 132, at 2126.
198. Swire, supra note 168, at 100; see also supra, chapter III.A.2.a.
The Efficiency of Cooperation: A FunctionAnalysis of Sovereignty
rather improbable that the states are able to assess correctly all interests of the
citizens and all the benefits of environmental protection measures. This failure of
politics to reflect the real interests and values of the citizens is another objection
to the argument that competition with comparative advantages leads to an
increase of the overall welfare. 199
Finally, it is doubtful whether the environment is an economic good that
can easily be traded against other economic goods. 200 While the economic value
of most economic goods can be determined relatively easy, there are difficulties
in measuring the "value" of the environment.2 1 Thus, an exchange of
environmental quality for economic goods inherently includes the risk to result in
an unbalanced transaction. Furthermore, if trees should have standing, 2°2 such
rights of nature would be neglected completely in the tradeoffs between
environmental protection and economic growth. If nature has rights per se, it
would be impossible to determine just compensation for limiting these rights, and
a quantification of the value of the environment and tradeoffs between
environment and economic goods would become impossible.
It can be concluded that the argument that competition among
jurisdictions will not lead to a loss of social welfare but to diversity where each
jurisdiction has the bundle of benefits (wages, jobs) and costs (pollution) it likes
most, is at least problematic. It rather seems to be a limited neoclassical
economic model, not reflecting adequately the reality of this world. The fact that
states adopting low environmental standards are not compensated with the
economic benefits of new firms, the failure to distribute the benefits to those who
bear the costs (creating selective domestic externalities), the tendency to neglect
future generation and thereby to create inter-temporal externalities, the possibility
of interstate externalities, the political failure to represent equally all interests,
and the difficulties or impossibility of measuring the value of the environment
make it unlikely that a "race to desirability" occurs. Because of these market
failures it is more appropriate to conclude that the regulative competition among
the states leads to a "race to the bottom" that is a "race to externalities" and thus a
"race to undesirability."'' 3 Therefore, cooperation would be more helpful for
reaching an optimal outcome than competition. Such cooperation, however, does
not have to lead to uniform technology-based standards; cooperation can also
lead to different standards representing different interests,2 4 to financial,
199. Stewart, supra note 17, at 2060; Esty, supra note 10, at 633.
200. Weiss, supra note 132, at 2125.
203. Swire, supra note 168, at 71. Peter B. Swire indicates, that while the "race to
the bottom" is a "race to undesirability" because it is a race to laxity, the "NIMBY" (Not-
In-My-Back-Yard) is a "race to undesirability" because it is a "race to strictness".
204. Thus, in Stewart's example cooperation could lead to the adoption of standard
3 by state B and standard 2 by state A. See Stewart, supra note 17, at 2059.
technical and institutional assistance, or to the adoption of market-based

environmental protection incentives like taxes and fees, transferable
205
pollution
permits, deposit and return systems, and information strategies.
c. Tragedy of the Commons
Another issue that may make cooperation desirable involves the

commons and shared resources. Types of goods can be distinguished according
to the access to their use and the consequences of their use into private goods (for
example, a bicycle), common-pool resources (for example, international rivers),
impure public goods (for example, fisheries in the ocean, air) and pure public
goods (for example, beautiful landscape). 206 While the user or owner of a private
good can prevent others from using it, a restriction of the use of pure and impure
public goods is impossible or impracticable because it is too costly, and the use
of common-pool resources can be partially limited (a non-riparian has no access
to use the watercourses of an international river). While the use of a pure public
good does not detract from the benefits others may have, the consumption of
private goods, common-pool resources and impure public goods detracts from its
benefits to others (a bicycle gets older with use, catching fish reduces the stock of
fisheries, the pollution of a river reduces the possible use of this river by the other
riparians as a source of drinking water). However, there is an important
difference in this rivalry between the benefits of private goods and the benefits
of impure public goods and common-pool resources. Benefits of private goods
are absolutely rival, in other words, their use immediately detracts from the
possible benefits to others, but impure public goods and common-pool resources
typically can bear some joint usage without detracting from the benefits for
others, but "congest" when uses increase too much. Impure public goods and
common-pool resources are therefore called "congestible."20 Thus, the benefits
of a private good are excludable and rival; the benefits of pure public goods are
non-excludable and non-rival; the benefits of impure public goods are non-
excludable and congestible, and the benefits
28
of common-pool resources finally
are partially excludable and congestible. 0
Commons are typically impure public goods and shared resources are
common-pool resources. They are non-excludable or partly excludable and both
205. Id. at 2093.

206. HARDIN, supra note 111, at 17-19; MICHAEL TAYLOR, THiE POSSIBILITY OF
COOPERATION 3, 5-6 (1987); Eyal Benvenisti, Collective Action in the Utilization of
Shared Freshwater: The Challenges of International Water Resources Law, 90 AM. J.
INT'LL. 384, 388 (1996).
207. Carol M. Rose, Rethinking Environmental Controls: Management Strategies
for Common Resources, 91 DUKE L.J. 1, 5-6 (1991).
208. Benvenisti, supra note 206, at 388.
are congestive. This means that while several have access to their use, this use
will detract from the benefits for others if used too much. Furthermore, the costs
of such use (detraction of the benefits) are not bome by the user alone but shared
by all. And the benefits of measures aimed to protect these goods also are shared
by all. Consequently, all who have access to the use of commons or shared
resources have an incentive to use them as much as possible and none has an
incentive to take costly protective measures. Thus, there is an inherent tendency
to overuse and underprotection which may lead to the ruin of the commons or
shared resources. This process is generally referred to as "tragedy of the
commons."2W
The traditional example of the "tragedy of the commons" involves a
pasture open to all.210 Everybody is grazing her cattle on this pasture. As each
herdswoman will try to maximize her gains, each will try to keep as many cattle
as possible on the common pasture. With the growth of the population, the
number of cattle increases as well. The common land first may satisfy the need of
all cattle, but sooner or later there will be too many cattle and the land will be
overused and ruined. Each herdswoman-if acting rational in an economic sense-
has only the incentive to add more and more animals to her herd. Each additional
animal will increase her income and wealth, while the cost (the degradation of
the pasture) is shared by all. If some herdswomen would reduce their cattle in
order to prevent overutilization, the others would free-ride on this undertaking
and perhaps add even more animals to their herds. While some of the
herdswomen bear the cost of this measure in reducing their herd, all share the
benefits. Thus, "[f]reedom in a commons brings ruin to all."21 '
Modem examples of a tragedy of the commons through overuse and
underprotection involve the climate and the ozone layer,212 biodiversity, fisheries,
water and air quality, and so forth. All these examples involve a collective-action
problem where rational individual action, in other words, action according to
209. For a general description of this tragedy of the commons, see Garrett J.
Hardin, The Tragedy of the Commons, 162 SCIENCE 1243 (1968).
210. Id. at 1244.
211. Id. Daniel Fife correctly criticizes this sentence and amends it into "freedom
in a commons brings death to the commons." Daniel Fife, Killing the Goose,
ENVIRONMENT, Apr. 1971, at 20. If the herdswomen would not have increased their herds
but used the pasture reasonably and sustainably, they would have gained less income and
wealth. Thus, although the commons will be ruined, the herdswomen made a profit by
increasing their herds. If this profit can be invested such as to yield a higher dividend than
the breeding of cattle did, the herdswomen are economically better off than by limiting
themselves to a sustainable use of the pasture. Thus, "[tihe commons is being killed but
someone is getting rich." Id. at 20. Such a situation is referred to as "killing the goose."
212. Richard B. Stewart & Jonathan B. Wiener, The Comprehensive Approach to
Global Climate Policy: Issues of Design and Practicability,9 ARIZ. J. INT'L & CoMP. L.
83, 83 (1992); Wood, supranote 23, at 296.
one's interests, leads to a Pareto-inferior outcome. 213 Whereas all have an interest
in getting more out of a resource, none has an interest to take protective
measures. There is again a prisoner's dilemma situation.214 In the traditional
example of the tragedy of the commons, each herdswoman has an incentive to
maximize her use of the pasture and to add more animals to her herds as each
supplementary animal will increase her wealth. Even if they would know that the
pasture is able to sustain only a limited number of animals, they would not want
to reduce the number of their cattle, as long as they are not sure that the others
are not increasing their herd in return. Thus, the dominant strategy is to increase
the herd although this may ruin the pasture. They could cooperate and agree to
limit their herds at a sustainable level. However, without control, information,
and effective means of enforcement all have an incentive to defect and thus cause
the exhaustion of the commons.
Game theory indicates that cooperation may emerge if the players expect
the game to be iterated indefinitely. 21 Repetition of a game will enhance the
likelihood of cooperative behavior, since the players have an incentive to
cooperate as non-cooperation would cause the other players to deviate from
cooperation as well. 2t6 But the players will realize that in the long run the
outcome of the individual strategies will lead to a Pareto-inferior outcome despite
a contrary short-time interest not to cooperate or to defect. The situation with
regard to commons and shared resources is the same. Sooner or later it will
become clear for each actor that because of its rivalry 217 the unlimited use of
commons and shared resources will cause the over-exploitation and degradation
of these resources and that consequently non-cooperation will result in negative
payoffs. The more visible the possibility of overuse and failure becomes, the
more the actors will prefer the adoption of a cooperative system rather than
continue the "do nothing" strategy. Thus, at the beginning, the dominant strategy
of each actor may have been to increase her use of the commons or shared
213. Taylor, supra note 206, at 19. For description of the Pareto optimum
respectively Pareto-inferior outcome, see supra note 124.
214. Benvenisti, supra note 206, at 389. For explaination of the Prisoner's
Dilemma, see supra, note 83 and accompanying text.
215. ROGER B. MYERSON, GAME THEORY: ANALYSIS OF CONFLIcT 309 (1991)
(showing, that in an infinite game the players have a bigger expected total future payoff if
they choose to cooperate as long as no one has deviated and chosen to defect); see also
SAMUELSON & NORDHAUS, EcONOMICS, supra note 14, at 210-11 (indicating that the
golden rule in repeated games is that each player cooperates, in other words, does what
she would like the other players to do, but only as long as they are actually cooperating as
well); FUDENBERG&TIROLE, supra note 125, at 110-12; TAYLOR, supra note 206, at 65-6;
Duxbury, supra note 18, at 7-9.
216. BAIRD ET. AL., supra note 31, at 173-74.
217. The use of commons and shared resources is rival because it detracts from the
benefits of others to use them. See supra part III.A.2.c.
resources, but this dominant strategy

218 will change into cooperation as soon as
negative payoffs become clear.
There are four strategies to meet this tragedy of the commons: (1) do
nothing; (2) keep out newcomers; (3) regulate the use of the commons; and (4)
divide the commons and establishing individualized property-rights. 219 There are
numerous "real world" examples for each of these strategies. There seems to be a
"do nothing" attitude to exceeding the ozone threshold value in Switzerland. 220
The "keep out" strategy is adopted, when, for example, the construction of new
shopping centers is prohibited on the ground that they would increase traffic and
air pollution. 221 The most typical approach to the tragedy of commons is to
regulate their use, for example, by prescribing performance standards to reduce
or limit air pollution. 222 Finally, the creation of tradable pollution rights as
proposed in the academic literature 23 or adopted under the Clean Air Act
Amendments of 1990 for sulfur dioxide emission, 224 is an attempt to create
individual property rights. Another example is the creation of special rights of the

219. Stephen Cheung, The Structure of a Contract and the Theory of a Non-
Exclusive Resource, 13 J.L. & ECON. 49, 64 (1989); Rose, supra note 207, at 9.
220. Michael Walther, Schutzpflicht bei Sommersmog, PLADOYER 3/1997, at 11.
221. Rose, supra note 207, at 10.
222. For the United States see Clean Air Act (pre-1990) § 111(a)(1), 42 U.S.C. §
7411(a)(1)(1988) (technology based performance standards for new stationary sources) or
§ 202(a)(3)(A), 42 U.S.C. § 7521(a)(3)(A) (technology based standards for cars). For
Switzerland see Art. 11 Bundesgesetz tiber den Umweltschutz (USG),Oct. 7, 1983 (SR
[Systematische Sammiung des Bundesrechts] 814.01). (prescribing that air pollution has to
be limited at its source as much as technically, operationally, and economically possible);
Luftreinhalte-Verordnung (LRV) vom 16. Dezember 1985 (SR 814.318.142.1) and
annexes (prescribing emission standards for air pollution); Verordnung fiber
Abgasemissionen leichter Motorwagen, Oct. 22, 1986, (SR 741.435.1) prescribing
emission standards for cars.
223. ENDRES, supra note 25, at 106-17 (general description of the system with
tradable "rights to use the environment"); MENELL & STEWART, supra note 28, at 415-16
(describing the RECLAIM program adopted in the greater Los Angeles area that provides
for a system with marketable permits for stationary sources of S02 and NOx); Stewart &
Wiener, supra note 212, at 103-109 (describing a system of international emissions trading
for the reduction of climate change gases in the atmosphere); Revesz, supra note 134, at
2411-14 (discussing tradable units of environmental degradation as opposed to tradable
units of emissions); MARC-ALAIN STRrrT, POLITIQUE ENVIRONNE ET EFFICACITE
ECONOMIQUE: POUR L'INTRODUCTION DE CERTIFICATS NEGOCIABLES EN SUISSE (1997)
(describing generally systems with tradable certificates as efficient and flexible means to
protect the environment) Id. at 9-26. (discussing the possibility of their application in
Switzerland.) Id. 89-157.
224. Clean Air Act § 401, 42 U.S.C. § 7651 (this 1990 amendment provides for a
reduction of sulfur emissions by 50% over a 10-year period, those utilities reducing their
emissions faster than required by the schedule can sell their excess reductions to other
utilities who have difficulties to meet the schedule)
coastal states with regard to their exclusive economic zones and their continental
shelves. The former common use of the resources in these zones led to over-
utilization and degradation. 225 Because of a growing concerns for the
conservation of fishing resources and the prevention of pollution, the claim of the
coastal states to extend their control over wide areas of the sea adjacent to their
coastline was generally approved.226
Each of the four strategies involves costs. These costs include
administrative or system costs (the costs of running the management strategy-
information, organization, monitoring, and enforcement costs), user costs (the
costs the strategy imposes on the users of the resource-for example, costs for
extra equipment necessary to satisfy emission limits) and overuse or failure costs
(the costs of the exhaustion and degradation of the resource).227 A comparison of
the costs and benefits of the four strategies indicates that there is no absolute
"best" or most efficient strategy: depending on the level of "pressure" on the
resource, another strategy will result in lower total costs.228 Thus, when there is
only a very slight demand for the underlying resource and therefore little risk of
overuse and exhaustion, doing nothing may be the most efficient strategy. If the
pressure on the resource and the possibility of overuse increase, doing nothing
may become insufficient. A strategy of keeping out newcomers will involve more
costs than doing nothing (monitoring and enforcement of the keep out policy)
and it might be able to prevent exhaustion of the resource. However, if the users
still permitted to use the resource further expand their use, the keep off strategy
will risk overuse. A further increase of the demand for the resource will make it
more efficient to regulate the use of the resource than to keep out newcomers.
The costs of getting the necessary information for the adoption of effective
regulation and the monitoring and enforcement costs would grow, but the costs of
failure would be even bigger if the use of the resource were not regulated. If the
use of the resource still increases under a system of regulation, the regulation has
to become tighter in order to prevent failure. Thus, the system and user costs will
increase and they might reach the point where the creation of property rights will
225. Thus, the Truman Proclamation of 1945 establishing U.S. "conservation

zones in those areas of the high seas contiguous to the coasts of the United States"-in
other words, zones subject to exclusive U.S. jurisdiction with regard to fishing-argues that
the establishment of such zones has the aim to protect the fishery resources not adequately
protected under the former arrangements without exclusive competence of a single state.
13 DEP'T ST. BULL. 486. Similarly, the Latin American states argued in the Lima and
Montevideo Declarations of 1970 that the reason for the extension of their sovereignty and
jurisdiction over the sea is to prevent "abusive practices in the extraction of marine
resources." 9 I.L.M. 1081 (1970); 10 I.L.M. 207 (1971).
226. D. J. HARRIS, CASES AND MATERIALS ON INTERNATIONAL LAW at 348 (4th ed.
1991).
227. Rose, supra note 207, at 12.
228. Id. at 14-24, 37.
be cheaper.229 When a resource can be divided without problems, for example,

when a common pasture is divided into private property, this strategy will not
cause high costs."° ° In other situations, the creation of property rights may
involve huge difficulties and system costs. For example, in the case of air
pollution, a system with tradable pollution permits would first need the
evaluation of the amount of total permitted "sustainable" pollution. The views on
that issue will probably differ widely and it may be difficult to find an agreement
already for that first step. A total number of pollution permits equal to this total
amount of "sustainable" pollution has to be created and allocated among the
possible users. This allocation of property rights (the pollution permits) again
will involve problems. Furthermore, it must be determined in which areas these
pollution permits may be traded and whether a certain maximum of pollution
concentration still should be prescribed. May a company buy all permits issued
for the state of New York and use them for a one pollution source in Manhattan's
Upper East Side, thus concentrating all New York's pollution at one location?
What, if that company wants to acquire permits from Alaska in order to increase
its pollution further? 1 Once these rights have been distributed, monitoring and
policing will be necessary. This again will involve huge difficulties and costs as
it must be determined for each pollution source whether it exceeds its permitted
emissions.
The strategy of property rights may not only involve high system costs,
it may raise questions of equity. 232 It creates a right to pollute while everybody
229. Under a purely economic point of view, the system and user costs could also
reach the point where they are bigger than failure costs and thus it would be cheaper to
overuse and destroy a natural resource than to protect it. However, as indicated above it is
very difficult to assess properly the costs of such failure, see above footnotes 195-197 and
accompanying text. Furthermore, the environment might have a value for itself,
independent of its "utility" for mankind. Therefore, under an environmental approach, the
destruction of the environment can never be "efficient".
230. Such a "cheap" solution might however involve hidden social and cultural
costs which are again very difficult to assess.
231. Because of this problem of "hot spots", some author argue, that one of the
requirements for the adoption of a system with tradable certificates/pollution permits is
that the higher level of pollution reduction of some polluter in fact compensates the lower
level of others. This is best possible in cases where the impact on the environment does
not depend on the specific location of the pollution source but is rather a global problem.
STRrrr, supra note 223, at 50. Revesz indicates, that in contrast to a system with tradable
emission permits, a system with tradable environmental degradation permits could solve
this problem and ensure compliance with specific ambient standards. Revesz, supra note
134, at 2410-14.
232. The creation of private property rights bears the risk that wealthier will be
able to acquire more rights than the economic disadvantaged. Edith Brown Weiss thus
concludes, that the creation of property rights only addresses issues of efficiency, but
neglect questions of equity Weiss, supra note 132, at 2140. Frangois du Bois however
indicates that "[E]nvironmental issues raise social dilemmas in addition to conservation
should prevent pollution. 33 Furthermore, because of its higher system costs, it

will probably allocate a greater proportion of the overall ollution-control costs
to the public, and a smaller proportion to the polluters." The advantage of a
system with property rights lies in the fact, that the user of the resource is more
flexible in the selection of the means for reducing pollution and that overall the
most efficient environmental protection measures could be adopted. Polluter A,
whose pollution control costs are high, could buy the "right to pollute" from B,
whose pollution control costs are low. A thus pays B for fulfilling a task that she
would not be able to do as efficiently.2 5 A system with property rights or
tradable pollution permits may be more efficient and more flexible-it creates
incentives to pursue pollution reduction even 6if the minimal standards are met,
and it therefore stimulates technical progress.23
From the four possibilities to manage commons or shared resources,
only the first can be based on an understanding of states as fully free and
independent actors, whereas policies of keeping off newcomers, regulating the
use of the resources and creating property rights require cooperation. The
property strategy is sometimes suggested as an alternative to collective action.
As described above, however, this strategy involves common preparation,
adoption, monitoring, and enforcement. Furthermore, a system of property rights
makes sense only if there are also common institutions for the protection of those
property rights. Thus, such a system may require even closer cooperation than a
system of control and command. The only system that needs no cooperation
among the different actors is the strategy of doing nothing. However, this
strategy is only efficient if the use of the commons or shared resources remains at
a low level. As soon as the use increases-and in a "do nothing" system, there is
an incentive to increase the use-the pressure on the resource grows, increasing
the risk of exhaustion and congestion. If the participants continue their "do
nothing" strategy, the tragedy of the commons will become real. The only way
issues; they have an 'equity side' as well as a 'conservation side."' du Bois, supra note
Ill, at 75.
233. Rose, supra note 207 at 29.
234. Id. The polluters of course still bear the costs to limit their pollution to the
amount they have a right to according to their permits.
235. STRrrr, supra note 223, at 11.
236. Id. at 20-26, 229-30. For a more specific description of the advantages and
difficulties of a system with tradable pollution permits, see MENELL & STEWART, supra
note 28, at 384-94; Stewart, supra note 17, at 3094-95 (concluding that the use of
transferable permits in lieu of uniform technology-based controls would substantially - up
to 50% - reduce the overall cost of limiting pollution to a given level); SrRrrr, supra note
223, at 231 estimates that a system with tradable certificates could be reduce costs up to 3
times; Revesz, supra note 134, at 2410-14 (indicating that a tradable permit system would
have the advantage, that a federal administration would not have to decide, whether a
downwind or upwind state should have the right to develop and pollute further, as each
state could buy permits and reserve them for future growth).
out of this situation would be to cooperate and to adopt either a strategy of

keeping off newcomers, regulating the use of the resource, or creating property
rights. Thus, the more the pressure on the resource increases, the more necessary
the adoption of a cooperative management system for the commons and shared
resources. Consequently, it will become apparent that the conception of states
merely as free and independent entities ultimately leads to a "do nothing"
strategy which is not efficient when dealing with the commons and other shared
resources. States will realize also that it is more efficient to accept cooperation
that may lead to the adoption of the strategy best reflecting the amount of the
pressure on the resources.
d. Economies of Scale
Measures to protect the environment are costly. The gathering and

evaluation of information necessary to adopt environmental protection measures
causes enormous costs. Then, the regulation of processes and product standards
may increase the costs of production. Finally, control and enforcement of the
adopted regulation also entails costs. There is tremendous pressure in each of
these fields to hold down costs. Costs must be in a certain ratio with the
advantages gained from the environmental protection measures, and they must
not exceed disproportionately the benefits. However, through cooperation,
there are possibilities of economies of scale in each of these fields.
The costs for scientific research to understand the ecological
interdependencies and the precise effects of human activities on the environment
are immense. Many causes and mechanisms are not yet fully understood. For
example, although the basic elements of climate change seem to be clear, 38 there
is still scientific debate about many important details and many uncertainties
237. Concerning cost-benefit analyses, see generally: MENELL & STEWART, supra
note 28, at 81-101. While the cost-benefit analyses may be very helpful for finding the
most efficient means to reach a certain goal, there are tendencies to have recourse to cost-
benefit analyses also to determine the goal itself, efficiency thus ceases to be a means and
becomes an end. Because the evaluation of the full economic value of the benefits of
protecting the environment involves tremendous difficulties and uncertainties, such a cost-
benefit analysis risks to underestimate the benefits of a certain measure (see supra notes
195-197 and 200-202 and accompanying text). The costs on the other hand normally can
easily be assessed. Thus, the cost-benefit analyses, while enjoying the image of being
"technical" and "objective", are in fact subjective as they have to be based on arbitrary
assumptions of the non-econonic value of a clean environment. Therefore, with regard to
the determination of goals it is questionable, whether cost-benefit analyses help or veil.
For a criticism of cost-benefit analyses and issues of intergenerational equity, see Wood,
supra note 23, at 318-19.
238. For a short description of the mechanism of climate change, see SANDS, supra
note 2, at 271.
560 Arizona Journalof Internationaland Comparative Law Vol 15, No. 2 1998
remain. 239 Coordinating attempts to understand the ecological causes, exchange

and share knowledge and information, and collaborate in the search for means to
prevent and combat environmental degradation not only reduces costs, it may
also foster synergies and increase the effectiveness of the final achievement.
Furthermore, many environmental problems involve transboundary causes.
Hence, international cooperation is indispensable for their investigation.
Moreover, research projects may be too costly to be financed by a single state. To
limit the research and the information about ecological causes and mechanisms to
national boundaries would be inefficient and obstructive. Therefore, most major
research projects are undertaken on an international level, are sponsored by
several states, and involve the cooperation of scientists from all over the world.
As shown above, 240 products that reach a country may pose a threat to
the environment of that country. Therefore, states may adopt restrictions like
prescription of minimal product standards or labeling, specific requirements for
the sale of goods, taxation of environmentally harmful goods, or prohibition of
such goods. If different states adopt different standards, this leads to a
fragmentation of the market, and an increase of the transaction and production
costs, as different products have to be produced for each jurisdiction. 241 The
harmonization and standardization of product requirements, on the other hand,
would provide the means for economies of scale.2 42 Such economies of scale
would not only be possible with regard to the production of goods, but also with
regard to their transportation, as harmonization could enable uniform labeling
and transport requirements. The harmonization of standards, labeling, and
packing requirements also facilitates international control and cooperation in
enforcement. Finally, the adoption of similar standards in different states not
only reduced the costs of production transportation and control, it also increases
the market of a certain product and thereby furthers competition between
different producers. Therefore, product standards are often seen rather as trade
barriers and impediments to competition than as environmental protection
measures. Thus, in order to remove national differences that could adversely
affect intra-Community trade and fair competition in a common market, the3
European Community has harmonized standards and product requirements.2
239. See HUPFER, supra note 88, at 290, concluding however that these
uncertainties are sometimes overemphasized.
240. chapter IM.A.l.b.
241. Daniel D. Esty & Danien Geradin, Market Access, Competitiveness, and
Harmonization: Environmental Protection in Regional Trade Agreements, 21 HARV.
ENVTL. L. REv. 265,270 (1997)
242. Esty, supra note 10, at 618-19. Esty & Geradin,supra note 241, at 283-84.
243. GEORGE A. BERMANN ET AL., CASES AND MATERIAL ON EUROPEAN
COMMUNTrY LAW 342 (1993); see also M. R6ttinger, Angleichung der Rechtsvorschriften,
in EG-VERTRAG: KOMMENTAR ZU DEM VERTRAG ZUR GRONDUNG DER EUROPAISCHEN
GEMEINSCHAFrEN 627, 631 n.5 (Carl Otto Lenz ed., 1994). The EC adopted
environmentally relevant harmonized product requirements like mandatory technical
The harmonization of product requirements may also create diseconomies insofar 24

as it may result in standards that are higher than required for specific regions.
For example, it may be unnecessary to prescribe stringent emission requirements
for cars in an area with nearly no traffic and minimal air pollution. However, the
economies of scale of harmonization probably outweigh these diseconomies.
Therefore, it can be concluded that all states 'should
245 have "a basic common
interest in harmonizing their product regulations.
Harmonization not only enables economies of scale concerning
products, but also with regard to standards for processes. 246 Measures to control,
reduce and prevent pollution from producing goods involve sophisticated and
expensive technologies, practices, and processes. If each state requires different
pollution prevention measures, this will increase the costs of developing,
constructing and using such measure. If all states would require the same
technology to reduce pollution, the price of this technology will decrease. The
harmonization of standards for processes therefore provide the possibility of huge
economies of scale. On the other hand, the harmonization of processes will also
lead to certain diseconomies of scale, as this would oblige industries located in
low polluted areas to adopt the same high pollution prevention standards as
industries in highly polluted areas, while tailoring environmental regulation to
local circumstances would improve social welfare. 247
Cooperation may also provide for economies of scale by enabling joint 248
implementation of measures to solve global problems like climate change.
standards for emissions from certain vehicles (Council Directive 70/220/EEC of 20 March
1970 [1970 O.J. (L 76/1) 13] and Council Directive 72/306/EEC of 2 August 1972 [1972
O.J. (L 190/1)] or limits on the concentration of lead in gas and oils (Council Directive
75/716/EEC of 24 November 1975 [18 OJ, L 307/22 (1975)]) long before the Single
European Act formally recognized that the EC had the competence to adopt environmental
legislation, see SANDS, supra note 2, at 546 and 552-53.. The EC legally justified its first
environmental measures with the argument, "that it removed non-tariff barriers to intra-
Community trade," see id. at 545 (thus, the cooperation in the environmental field was
aimed to further the establishment of a common market and competition, which should
increase the overall efficiency of the economy.)
244. VOGEL, supra note 171, at 103; Esty & Geradin, supra note 241, at 284; Kurt
A. Strasser, EnvironmentalLaw in the United States' FederalSystem, 9 CONN. J. INT'L L.
719, 725 (1994).
247. Id. at 606-07.
248. Chiara Giorgetti, An Overview of the Mechanisms of Joint Implementation of
the Framework Convention on Climate Change and Exiting Projects at 11 and 15-7
(forthcoming, on file with the author). For a critique of 'joint implementation" as a means
to reinforce existing inequities and a postulation of "joint cooperation" with tools like
contingency arrangements, international trusts for covering catastrophic effects of climate
change and funds for financing an increase in energy-efficiency, see Wood, supra note 23,
at 326-28.
Climate change is caused by emissions and environmental degradation all over

the world. As reduction of carbon dioxide emissions have beneficial effects to
the climate wherever the emissions are reduced,2 9 a cooperative approach may
be much more cost-effective than an attempt to solve the problem individually:
while the reduction of a certain amount of carbon dioxide in state A would have
the same effect as the same reduction in state B, it may be less costly to do it in
state A. So, it is probably cheaper to reduce carbon dioxide emissions in a state
with no requirements to prevent such emission than in a state that has already
prescribed stringent requirements for emission control and reduction. 250 As the
common aim is to reduce carbon dioxide emissions no matter where, both states
have an interest to pursue this aim jointly.25t Joint implementation of
environmental protection measure is a relatively new legal concept. 252 It is not
only referred to in the attempts to prevent climate change, but also in order to
fight marine pollution from land based sources and air pollution. z53 Economies of
scale are only one of several advantages of joint implementation, other
advantages include the flow of capital and technology from industrialized to
249. Due to intensive horizontal and vertical exchanges, C02 emission, the major
contributor to climate change, are spread relatively homogeneously all over the world.
FRrrz GASSMANN, WAS IST LOS MIT DEM TREIBHAUS ERDE 93 (1994). Thus, with regard to
the global climate change problem it is irrelevant where the C02 has been emitted.
Giorgetti, supra note 248, at 3, 11.
250. This is so because of the principle of diminishing returns: The reduction of
the first unit of emission will normally cost less than the reduction of the second unit. See
generally SAMUELSON & NORDHAUS, ECONOMICS, supra note 14, at 734. There are also
other reasons, why control and reduction of pollution may be easier and cheaper in one
area than in the other. The fact that the costs for the reduction of the same amount of
pollution differs among industries and sources is one of the major reasons why joint
implementation and/or the adoption of a system with tradable "pollution rights" seems to
be more cost-effective than the prescription of uniform standards. See supra note 235.
251. Thus, the Climate Change Convention of 1992 provides in Art. 3(3), 4(2)(a
and d) and 11(5) for the possibility of 'Joint implementation" of the policies to limit
anthropogenic emissions of greenhouse gases. See United Nations Framework Convention
on Climate Change, 31 I.L.M. 849 at 854, 856-57, 865 (1992). The aim of this provision
was to enable to carry out emission reductions in the most 'cost-effective' way possible
See SANDS, supra note 2, at 278.
252. Giorgetti, supra note 248, at 1. For a short presentation of the concept of joint
implementation, its history and its application in the Framework Convention on Climate
Change, see id.
253. Art. 4 of the 1974 Paris Convention for the Prevention of Marine Pollution
from Land Based Sources [13 I.L.M. 352, at 354-55 (1974)], Art. 2.8 of the 1987 Montreal
Protocol [26 I.L.M. 1541, at 1553 (1987)], and Art. 2.7 of the 1994 protocol to the 1979
Convention of Long-Range Transboundary Air Pollution [33 I.L.M. 1540, at 1544 (1994)].
See generallyGiorgetti, supra note 248, at 1-2.
developing countries, the creation2

of new business partnerships, business
opportunities, and job creation. M
Finally, there are also possibilities for economies of scale with regard to
cooperation itself. Many problems cannot be resolved effectively without
cooperation. Cooperation, therefore, often is indispensable. 25" Cooperation
however can occur on a case by case or on a continuous basis. While a case by
case cooperation may be less intrusive to the independence and freedom of the
states, a regular cooperation may lower bargaining costs between states, as
formal and informal contacts and channels are established and a mutual
confidence is built up. Another value of continuous cooperation lies in its
creation of a recurring iteration of bargaining situations. Similar to the recurring
iteration of prisoner's dilemma situations, this increases the incentive not to
follow the strategy that favors short-term interests.5 6 When there are multiple
games or bargaining situations and the relationship between the parties evolves
over time, the parties have an incentive to adopt a strategy that demonstrates their
goodwill and enhances their reputation as integrous and trustworthy, as this will
benefit their bargaining position in the long-term.257 Thus, repeated cooperation
creates a self interest not to act selfishly but flexibly, with an eye to the future.
This in turn facilitates constructive and productive cooperation in situations with
different interests. And regular cooperation furthers the development of a
cooperative regime and stable and enduring institutions which in turn may create 2
continuous benefits, ensuring consistent cooperative behavior over time. 5&
Therefore, because regular cooperation lowers bargaining costs and furthers long
time interests, states have an interest in formalizing perpetual cooperation.
The previous paragraphs have shown that cooperation opens possibilities
of economies of scale in multiple fields. However, cooperation is difficult when
states see themselves as autonomous actors. Harmonization of product standards
and processes is impossible if states cling to unlimited "freedom" and
"independence." These recalcitrant states perceive other states' influence over
the requirements for products to be sold or produced within their territory as an
intrusion into their sovereignty. Similarly, cooperation in the research to
understand ecological interdependencies, in the adoption and enforcement of
environmental regulations, and in the implementation of environmental measures
are impossible if states understand themselves as free and independent actors.
However, because scientific cooperation, harmonization of product requirements
and processes, collaboration in control and enforcement, joint implementation of
measures against common problems, and continuous and formalized cooperation
254. Giorgetti, supra note 248, at 6 and 10-11.

255. See supra parts III.A.1. and III.A.3. concerning externalities and commons.
256. See supra note 215 and accompanying text.
258. Wood, supra note 23, at 297.
564 Arizona Journalof International and ComparativeLaw Vol 15, No. 2 1998
increase effectiveness and enable economies of scale, states should accept that
their position within the international order includes a cooperative element.
B. Improvement or Safeguard of the Position in International Relations
The previous subehapter was based on the assumption that states seek to
maximize their own gains or the social welfare of their citizens. However, states
may have another motivation: they may want to improve or safeguard their actual
position in the international context. Therefore, they may seek to increase their
power and influence or to prevent a threat to the existing international order and
stability that guarantees their actual beneficial position.
1.Improvement of the Existing Position
States, like individuals, may want to increase their influence and power.
One way to increase a state's influence may be to cooperate with other states. The
states may, by moving closer together and giving up some of their independence,
gain more power~and influence than they give up. This concept has been called
"pooling of sovereignty"' 59 and refers to the fact, that when a states power and
competence is reduced, this power is not lost but reallocated somewhere else. 260
Therefore, the important questions are where that power goes and what is
received in exchange.26 1 In reallocating the competence over certain issues in a
common pool with other states, a state gives up its authority to regulate and
police these issues independently. But as the regulation of these issues will occur
at an international level, each state will gain in return the competence to take part
in the common decisions with the other states. It will thereby gain the
competence to participate in the resolution not only of the issues concerning
itself, but also of those concerning all other states. Thus, by giving up some local
authority, a state may obtain competencies over a larger field and increase its
overall influence and power. If it would be very difficult or inefficient to solve a
problem unilaterally, this may be even more attractive. By agreeing to solve the
problem together with the other states concerned, a state may not only increase
its efficiency, but also its influence and power.
The regulation of the navigation on an international river is an example
where states have an interest in "pooling their competencies." While each
riparian state could regulate the navigational, technical, and environmental
requirements independently for its part of the river, a common regulation by all
riparians would give each state the competence not only to influence the

260. Id.
261. Id.
regulation concerning its part of the river, but also the regulation with regard to
the whole river. Such a solution was adopted for many international rivers. For
example, the riparian states of the Rhine have given up their competence to
control unilaterally the navigation on their section of the Rhine already at the
beginning of the nineteenth century and they have created an international regime
where all decisions concerning the Rhine navigation are taken in common. 2 In
accepting a cooperative regime, each state has gained the competence and power
to take part in all decisions concerning the Rhine. As the vessels of each state
navigate on the whole river, and as each state has the interest that its vessels have
access to the whole river, it is more important to have an influence on the
organization of the regime of the whole river than for each state to be
autonomous in managing its share of the river. Thus, in agreeing to cooperate,
each state obtains an increase of power and influence that is more than making up
for the loss of autonomy. Therefore, the states have an interest in increasing the
competence of the common regime rather than limiting it. Accordingly, while the
regime established for the Rhine originally dealt only with proper issues of
navigation like the right to navigate and rules of navigation, it slowly grew to
include technical requirements
263 for vessels, economic questions and
environmental protection.
Finally, states may not only be interested in their absolute power and
influence, they may also be concerned with their relative position, in other words,
their influence and capacity as compared with the influence and capacity of the
other states. Such an interest in the relative rather than absolute capacity may be
stimulated by the aim to increase their international competitiveness. It may also
be motivated by the desire for security, as the security of a state may depend
more on its relative than absolute position. 264 Thus, an interest of states in their
relative position is ultimately also aimed to increase their absolute welfare, either
by increasing their competitiveness or by ensuring their security. Similarly,
262. For a short overview of the Rhine Regime, see Franz Xaver Perrez & Peter
Robert Reutlinger, Die Freiheitder Schiffahrt gemdss der durch das ZusatzprotokollNr. 2
geandertenMannheimerAkte, TRANSPORTRECHT, JUNE, 1995 at 228-32.
263. See Urs Haldimann, Die Mannheimer Akte im Srom der Zeit,
INTERNATIONALES RECHT AUF SEE UND BINNENGEwSSERN, FESTSCHRIFT FOR WALTER
MOLLER 75 (Alexander von Ziegler & Thomas Burckhardt eds., 1993). The regulation of
economic and environmental issues however raises conflicts with the competencies of the
European Community, where all states of the Rhine regimes but Switzerland are members.
See for this e.g. Albert Bour, Les relations entre la Communautj Economique Europienne
et la Commission Centralepour la navigation du Rhin, INTERNATIONALES RECHT AUP SEE
UND BINNENGEWASSERN, FESTSCHRIFr FOR WALTER MOLLER 61 (Alexander von Ziegler &
Thomas Burckhardt eds., 1993).
264. Accordingly, the amount and quality of capabilities as compared to the
amount and quality of capabilities of other states may be seen as the "ultimate basis for
state security and independence." JOSEPH M. GRIECO, COOPERATION AMONG NATIONS 39
(1990).
individuals may have an interest not only in their absolute but also in their
relative: welfare, 265 and because of this focus on their relative position they may
be willing to accept even a loss if, through that loss, they would gain as compared
to the others. However, even the relative position may not be weakened but
strengthened through cooperation: a state may gain importance and influence on
an international level with regard to other states by cooperating with other states.
Thus, while Switzerland alone would not be big and important enough to be
represented in the executive committee of the World Bank, it was able to do so
by forming a coalition with several other smaller states.266 This is a typical
example of pooling sovereignty in order to increase power and importance
relative other states. Similarly, the less developed states have long formed the
"group 77" to increase their influence within the United Nations, 267 and small
states like Switzerland, Luxembourg, Sweden, Belgium, and the Netherlands
were able to increase their political weight disproportionately through
international cooperation.2 8 Furthermore, even if states may be concerned with
their relative _osition, there are situations where they "cannot afford to forgo
cooperation," 269 as global problems like the depletion of the ozone layer or
climate change can only be resolved through cooperation, regardless of the
relative position of the single states towards each other. It can be concluded that
states have an interest in cooperating in order to improve their absolute and
265. Hobbes indicated that man's joy "consisteth in comparing himself with other
men," and because "men are continually in competition for Honour and Dignity," they
cannot peacefully "live in Society, without any coercive Power." THOMAS HOBBES,
LEVIATHAN 119 (Richard Tuck ed., Cambridge University Press, 1996) (1651). It would
be wrong to assume that human beings are only interested in their relative position as
compared to others, however, such a comparison may become more relevant after a
certain minimal standard that satisfies the fundamental needs is reached.
266. Bundesblatt, IIat 1160-1161 and 1243-44 (indicating that Switzerland will try
to form a group with other states to be represented in the executive committee of the IMF).
267. See, e.g., Wichard Woyke, Internationale Organisationen,
HANDWORTERBUCH INTERNATIONALE POLITIK 189, 194 (Wichard Woyke ed., 6th ed.,
(1995)) (indicating that the Group 77 was formed as a "collective organization of the weak
and small nations" in order to increase the influence of the members who would not have
had any influence individually); Dieter Nohlen & Bernhard Thibaut, Nord-Sld-Konflikt,
HANDWORTERBUCH INTERNATIONALE POLITIK 344, 345-46 (Wichard Woyke ed., 6th ed.,
(1995)) (indicating that the Group 77 was formed 1964 by the developing states as a
"union of the third world" to increase the weight of their claims vis-h-vis the developed
countries).
268. Urs W. Saxer, Die Zukunft des Nationalstaates,6 BASLER SCHRIFrEN ZUR
EuROPASCHEN INTEGRATION, at 36 (1994). Similarly, it is said that the/small European
states have strongly increased their influence by adhering to the European Community, see
e.g., Ingrid Hess, Die Kleinstaaten beherrschen Europa,DER BUND, September 16, 1997,
at 2.
relative position in the international context. By giving up some of their

independence they may increase their influence and power.
2. Safeguard of International Stability
As the international order is indispensable to the continued flourishing

of any state,270 states have a fundamental interest in safeguarding international
peace, harmony and stability. While the Cold War and economic tensions have
long been seen as major sources of international friction, environmental conflicts
are becoming increasingly important.271 Today, one has to admit that the
environment has become another threat to security. 272 There are numerous ways
in which environmental issues can give rise to tensions, violence, and even
military hostilities and thereby menace political harmony and security. 7 3
Political unease may emerge from interstate conflicts over environmental
resources. Local environmental degradation can cause regional instability and
produce "environmental refugees," 274 and activities involving local
environmental externalities-like radioactive fallout from nuclear tests or global
environmental alterations like climate change and depletion of the ozone layer-
culminate in political tensions all over the world.27 In order to prevent such
disharmonies and instabilities, states have necessarily to cooperate.
270. Myres Smith McDougal & W. Michael Reisman, InternationalLaw in Policy-

Oriented Perspective, THE STRUCTURE AND PROCESS OF INTERNATIONAL LAW: ESSAYS IN
LEGAL PHILOSOPHY, DOCTRINE AND THEORY 103, 109 (R. St. J.Macdonald & Couglas M.
Johnston eds., 1983).
271. Norman Myers concludes that while the past forty years have been dominated
by the Cold War, the next forty years will be dominated by environmental conflicts. "They
will add up to a variant of World War I,a war we are waging against the Earth - and a
war we are winning hands down." NORMAN MYERS, ULTIMATE SECURITY: THE
ENVIRONMENTAL BASIS FOR POLITICAL STABILITY 11-12 (1993).
272. Jessica Tuchman Mathews, Redefining Security, FOREIGN AFF., Spring 1989,
at 162; Stephan Kux, Subsidiarity and the Environment: Implementing International
Agreements, 8 BASLER SCHRIFrEN zuR EuROPXISCHEN INTEGRATIONat 44 (1994).
273. Jeffrey L. Dunoff, Resolving Trade-Environment Conflicts: The Case For
Trading Institutions;27 CORNELL INT'L L.J. 607, 617-18 (1994).
274. For a definition of "environmental refugee," see Dennis Gallagher,
Environment and Migration: A Security Problem?, in UMWELTFLOCHTLINGE: DAS
KONFLIKTPOTENTIAL VON MORGEN? 65, 67-69 (GUnther Bichler ed., 1994); concerning
environmental refugees generally, see Gtinther Bichler (ed.), UMWELTFLOCHTLINGE: DAS
KONFLIKTPOTENTIAL VON MORGEN? (1994); JODI L. JACOBSON, ENVIRONMENTAL
REFUGEES: A YARDSTICK OF HABrABILrrY, Worldwatch Paper 86 (1988); WOHLCKE,
MANFRED, UMWELTFLOCHTLINGE: URSACHEN uND FOLGEN (1992).
275. The nuclear test of France in the summer of 1995 on Mururoa not only caused
a political outcry and economic boycotts all over the world, it even provoked disturbances
in the European sports world: The Swiss national football (soccer) team held up a
Most interstate conflicts over environmental issues are resolved

peacefully through cooperation, for example by negotiation or adjudication
through an international court, or both. Examples of disputes that were settled by
submission to an international tribunal include the disputes between the United
States and Canada over transboundary air pollution resulting from a smelting
plant in Canada (Trail Smelter), 6 the dispute between France and Spain over the
diversion of the river Carol (Affaire du Lac Lanoux), 277 and the dispute between
Hungary and the Slovak Republic over the Gabcikovo-Nagymaros project to
produce hydroelectric power, provide flood protection for the Danube plain and
enhance navigability of the Danube river. 278 An example of an attempt to resolve
a conflict resulting from environmental stress by negotiation involves the
European transalpine road traffic. This traffic that is channeled from all Europe
through some few narrow alpine valleys in Switzerland, Austria and France
causes a concentration of air and noise pollution that became problematic for the
humans and the environment. 279 Therefore, the local population in Switzerland
suffering most under this pollution organized and formed a movement to fight the
traffic. This movement, supported by the Greens and the Socialist Party of
Switzerland, was surprisingly successful. On February 20, 1994, the Swiss
population adopted a constitutional amendment prescribing that all transalpine 280
traffic of goods has to be removed from the road to the rail within ten years.
transparent "Stop it Chirac!" while the Swiss national anthem was intoned at the
beginning of a selection game of the European championship against Sweden. Atomprotest
am falschen Ort, NEUE ZORCHER ZErruNO, Sept. 8, 1995, at 1; Der falsche Ort, NEUE
ZORCHER ZErrUNG, Sept. 8, 1995, at 64. After this highly publicized action of the Swiss
national football team, numerous professionals of the 1st and 2nd division of the Italian
football (soccer) championship "Calcio" were wearing T-shirts sponsored by Greenpeace
with the slogans against the French tests. Protest der Italienischen Fussballer,NEUE
ZORCHER ZErrUNG, Sept. 9-10, 1995, at 63.
276. Trail Smelter, supra note 64 at 1917. The Trail Smelter case involved
transboundary air pollution caused by sulphur dioxide fumes emitted from a smelting plant in
Canada. This air pollution caused damage in the United States. The Arbitral Tribunal held
Canada responsible for the damage, required indemnification, and directed the smelter plant
to refrain from causing further damages. Id at 1965-66.
277. See Affaire du Lac Lanoux [Lac Lanoux Arbitration] (Spain v. Fr.), 12 R.I.A.A.
281 (Nov. 16, 1957). The arbitration involved a French proposed diversion of the Carol
River, which flows from France to Spain, in order to construct a hydroelectric power plant.
The Tribunal found that France was not in breach of its obligation to take into account
Spain's interests and did not infringe Spain's rights. Id. at 316-17.
278. Williams, supra note 67, at 1-57.
279. For a short summary of the environmental stress caused by the road and
especially the truck traffic in the Alps, see Documentation Alpeninitiative (Alpeninitiative
ed., 1993), at B1-B8 (on file with author).
280. Art. 36 quarter of the provisional regulations of the Swiss Constitution. This
new article requires that all transit traffic of goods through the Alps, that is transalpine
This led to a conflict between the European Community and Austria. 211 While
the European Community has an interest in European trucks crossing Switzerland
without hindrance, Austria was afraid that the implementation of the Swiss
constitutional amendment would further shift the transalpine road traffic from
Switzerland to Austria. Moreover, the adoption of the Swiss constitutional
amendment has complicated the Swiss position in the bilateral negotiations
between Switzerland and the European Community through which Switzerland
would like to gain better access to the European market. 2 While the pressure on
the environment has increased to a level making essential the reduction of road
traffic, it is obvious that a radical closing of the roads through the Swiss Alps to
international traffic would be unacceptable for Switzerland's neighbors. On the
other hand, the European Community has a tremendous interest in the measures
adopted by Switzerland fitting into the European economic and traffic policy.
Finally, if the problem is not solved within a reasonable time, there is a risk that
the roads will be blocked regularly through spontaneous activities by the local
population and environmental groups. 283 Thus, Switzerland cannot solve the
problem of transalpine traffic unilaterally. While everybody has an interest in
solving the problem of transalpine truck traffic, the conflicting interests make
cooperation necessary. An effective solution would have to focus not only on the
traffic that is passing through Switzerland, has to be transported on the rail. The transfer
from road to rail has to be accomplished within 10 years.
In Switzerland, voters can propose changes to the constitution by presenting an
"initiative" which is signed by at least 100,000 voters. The "initiative" then is submitted to
a vote. In order to be adopted, such a proposed constitutional amendment has to be
accepted by a "double majority" of the Swiss population and Cantons (states of
Switzerland). The "Initiative of the Alps" was adopted narrowly with a majority of 51.9
% of all votes and 16 against 7 Cantons. Die Resultate im Oberblick, NEun ZORCHER
ZErrUNG, Feb. 21, 1994, at 17. See also, Erfolgreiche Alpeninitiative - was nun, NEUE
ZORCHER ZErrUNG, Feb. 21, 1994, at 17
281. Concerning the consternation of the EC after the adoption of the "Initiative of
the Alps"; See Weder Freudenoch Sympathie in Briissel, Neue Zircher Zeitung, Feb. 21,
1994, at 19; Alpeninitiative kein Votum gegen Europa, NEuE ZORCHER ZErrTUNG, Feb. 22,
1994, at 19. Concerning the dismay and fear of increased traffic of Austria in reaction to
the adoption of the "Initiative of the Alps" in Switzerland see e.g., Sttfrkung der
Verhandlungsposition:6sterreich und die Alpeninitiative, NEu- ZORCHER ZErrUNG, Feb.
22, 1994, at 19.
282. The bilateral negotiations were delayed for months and in May 1997 were
even interrupted because the EC was not willing to accept the Swiss proposals for the
implementation of the constitutional amendment to reduce and prohibit transalpine truck
traffic. See e.g., Vorliufiger Abbruch der Verkehrsverhandlungen, NEuE ZORCHER
ZErrtJNG, May 24-25, 1997, at 13.
283. Such blockades have already taken place in Switzerland and elsewhere.
Similarly, the transalpine highway through the Brenner is yearly blocked once or twice by
angry citizens Nicht gegeneinanderausspielen, DER BUND, July 10, 1997, at 11. It is
obvious that it is impossible-or at least too expensive-to prevent such actions.
transalpine traffic through Switzerland, but on similar traffic through Austria and
France as well. A shift of the traffic from the road to the rail should happen
already at its starting point, not at the Swiss borders. Switzerland, Austria and the
European Community are still negotiating how to resolve the problem of
transalpine traffic.
While many such interstate conflicts over natural resources are settled
peacefully, others lead to violence. Disputes over water use and river-diversion
projects are often the source for international tension, violence, and even wars. 284
The Euphrates that flows from the Kurdish mountains in Turkey through Syria
and Iraq into the Gulf of Persia is only one example of many. Turkey has
developed the first ideas to use the Euphrates for energy production and irrigation
in the 1930s.285 This led to the adoption of the Southeast Anatolia Project
("Giineydogu Anadolu Projesi," GAP) that include the Ataturk Dam and large-
scale irrigation projects. 286 The aim of this project was not only to provide
electrical energy and further the economic situation of the region, but also to
strengthen the Turkish control over the rebellious Kurds with "friendly and
laudable means." 287 However, because of its impact on the Euphrates, the GAP
has lead to serious conflicts with Syria and Iraq, 288 and Syria reportedly
supported anti-Turkish groups to ensure the supply of water from the
Euphrates.2 9 Similarly, Syria pursued plans to use the Euphrates for energy
production and irrigation projects and Syria and Iraq were close to a war when
Syria dammed the Euphrates for the Assad reservoir in 1975, thereby reducing
tremendously the flow of the Euphrates. 290 Other disputes over water use and
river-diversion projects that have given rise to tensions and violence include
conflicts in the river basins of the Mekong (shared by Laos, Thailand, Cambodia
and Vietnam), the Parana (shared by Brazil and Argentina), the Lauce (shared by
Bolivia and Chile), the Medjerda (shared by Tunisia and Libya), and the Jordan
River (Syria, Jordan, and Israel) 291 Conflicts over water supplies of the Jordan
284. See e.g., JOHN BULLOCH & ADEL DARWISH, WATER WARS: COMING
CONFLCrs INTHE MIDDLE EAST (London: Gollance)(1993) (arguing, that today it is water,
not oil, which is the real threat to regional peace in the Middle East).
285. Rainer Stoodt, Ne mutlu Thrkiim diyene. Das GAP-Projekt in Nordwest-
Kurdistan, KURDISTAN, POLITISCHE PERSPEKTIVEN IN EINEM GETEILTEN LAND 230, 231
(Hinz-Karadeniz & Stoodt eds., 1994).
286. Stoodt, supra note 285, at 230; BULLOCH & DARWISH, supra note 284, at 65.
287. Hinz-Karadeniz, supra note 66, at 206.
288. Id. at 206-08.
289. Id. at 207-08; Bulloch & Darwish, supra note 284, at 60-71; H.J.Skutel,
Turkey's Kurdish Problem, INT'L PERSPECTIVES, 22, 24 (Feb. 1988).
290. Norman Myers, Environment And Security, 74 FOREIGN POLIcY,Spring 1989
at 29; Hinz-Karadeniz, supra note 66, at 207.
291. Myers, supra note 290, at 28-30.
were most important factors in the 1967 Middle East War.2 92 It seems clear that
the future stability of any political accord in the Middle East is threatened by the
severe pressure on the environment. Thus, peace is only possible with 293 a
comprehensive solution of environmental problems like water distribution.
International instability may not only arise from interstate conflicts over
natural resources, there are also many examples where local destruction of the
natural environment lead to tension and revolts. Often, gigantic water projects of
undemocratic governments involve not only enormous environmental impacts,
but entail tremendous social changes, dislocation and uprooting of communities,
destruction of minority cultures and civilizations, and individual human rights
violations, sometimes on a very large scale.2 4 Thus, the GAP project of Turkey
entailed massive dislocation of the local population, destruction of the social and
economic structures, impoverishment, destruction of cultural monuments,
massive human rights violations, and even ethnic cleansin. 29 5 The vast Three
Georges Dam scheme in China displaces 1,400,000 peoples, 296 and dam projects
in Brazil have flooded the lands of 34 Indian tribes. 297 Dams are not the only
projects that further regional instability and produce refugees. Environmental
destruction like deforestation, disappearance of soil and farmland and extreme
cases of toxic pollution like Bhopal and Chernobyl, produce environmental
refugees all over the world.298 In 1989, it is estimated that environmental stress in
Africa alone created six million refugees,299 and that globally, there were at least
ten million environmental refugees. 300 This migration due to environmental
degradation in turn causes new tensions and contributes to the aggravation of
292. HILLEL, supra note 69, at 163; Hinz-Karadeniz, supra note 66, at 213; Myers,
supra note 290, at 28; MYERS, supra note 271, at 9.
293. See e.g., HILLEL, supra note 69, at ix.
294. Benvenisti, supranote 206, at 405.
295. Stoodt, supra note 285, at 233-37.
296. GOLDSMITH ET. AL, supra note 116, at 15.
297. Id. For an overview of the effects of some of the major dam projects on
displacement and resettlement of peoples, see also EDWARD GOLDSMITH & NICHOLAS
HILDYARD, THE SOCIAL AND ENvIRONMENTAL EFFECTS OF LARGE DAMS, VOLUME III: A
REVIEW OF LrrERATURE 77-95 (1992).
298. Mathews, supra note 272, at 168, describing the situation of Haiti. The
catastrophe of Bhopal when a Union Carbide pesticide plant accidentally released a cloud
of methyl isocyate, caused in 1984 over 200,000 people to flee, and in 1996 over 100,000
had to leave their homes because of the accident in the nuclear power station in
Chernobyl. WOHLCKE, supra note 274, at 71. See generallysupra, references in note 274.
299. Catherine Schiemann Rittri, UMWELTFLOCHTLINGE: DAS KONFLIKTPOTENTIAL
VON MORGEN? 36, 38 (Ginther Bdchler, ed., 1994).
300. Jodi L. Jacobson, Abandoning Homelands, STATE OF THE WORLD 1989, 59, 60
(Lester R. Brown ed., 1989). Newer estimations conclude that there are globally between
50 and 500 millions of environmental refugees. See Jtirgen Scheffran, Kriegs- und
Umwelflaichtlinge, MIGRATION UND AUSLANDERFEINDLICHKEIT 23, 28 (Gemot Bdhme et
al. eds., 1994).
572 Arizona Journalof Internationaland ComparativeLaw Val 15,No. 2 1998
already existing conflicts.30 1 Finally, environmental degradation contributes

generally to despair 30and 3 extremism, 302 thereby, indirectly contributing to
instability and tension.
Environmental problems pose a growing danger to a peaceful
international order. They produce tensions and lead to violent conflicts all over
the world. If states try individually to solve environmental problems, they risk
affecting the interests of other states. This may threaten the international
harmony which is necessary for the well-being of all. In order to keep
environmental stress and conflicting interests over natural resources from
escalating into violence, the states have to cooperate. But an understanding of
states merely as independent and free only increases the threat that conflicting
interests lead to tensions, not only with regard to environmental issues, but in all
areas of international relations. 30 4 Unrestrained liberty and independence has to
be recognized as self-destructive, 305 and states must cooperate to prevent a
deterioration of the existing order into serious friction.30 6 Finally, cooperation and
international institutions and organizations like the League of Nations or the
United Nations have traditionally provided a protection against external threats. 3 7
This function has not changed, as the intervention in Kuwait has shown. D
Furthermore, as international economic, military, humanitarian, and technologic
aid are part of the tasks.of the international system, cooperation may also provide
assistance in cases of internal difficulties and crises. 308 Therefore, as international
stability and national security is achievable only by way of international
cooperation, 3 09 and as cooperation may provide for support in cases of external or
internal difficulties, rational states would prefer that their position within the
international system include an element of cooperation.
301. Volker B6ge, Environmental Refugees as a Source of Violent Conflicts?

Conclusions,in UMWELTFLOCHTLINGE: DAs KONFLIKTPOTENTIAL VON MORGEN? 167, 168
(GUnther Btchler ed., 1994).
302. HILLEL, supra note 69, at ix.
303. Dunoff, supra note 273, at 617.
304. See e.g., Henry T. King, Jr., The Limitations of Sovereignty from Nuremberg
to Sarajevo, 20 Can.-U.S. L.J. 167 (1994), who concludes, that the belief that "sovereignty
[understood as independence and autonomy] brings security is an illusion.", and [at 173].
305. Leo Gross, The Peace of Westphalia, 1648-1948, 42 AM. J. INT. L. 20, 39
(1948).
306. King, supra note 304, at 173. King argues that "[t]here is no talk of war
today between France and Germany and, probably, never will be again" because both
states surrendered considerable independence and started to cooperate in establishing the
European Community.
307. Saxer, supra note 268, at 35.
308. Id.
309. Bernard Graefrath, Universal Criminal Jurisdiction and an International
Criminal Court, 1 EUR. J. INT'L. L. 67, 73 (1990) (stating that "there is increasing
recognition that national security is at present achievable only by way of international
cooperation.").
IV. REALLOCATION OF JURISDICTION AND POWER
The preceding chapter has shown that externality issues, uncertainties of

a race to the bottom, and problems of the commons can be solved effectively and
efficiently only through cooperation. Furthermore, cooperation provides for
extensive possibilities of economies of scale and enables through a "pooling of
sovereignty" the improvement of a state's position within the international order.
As indicated above, some authors do not believe that there is a "race to the
bottom" that is a "race to undesirability" and they therefore contend that
competitive externalities may justify cooperation. And while cooperation is able
to provide economies of scales in multiple fields, cooperation may also lead to
diseconomies. Then, possibilities to increase welfare by a process of "pooling of
sovereignty" are not relevant for all states. Nevertheless, while some reasons to
cooperate discussed in the previous chapter may be less important than others, it
is difficult to challenge the notion that externality issues and problems of the
commons can only be resolved efficiently through cooperation, in other words,
by a rejection of claims to act fully free and independent of the other states.
But even if cooperation is more efficient than unilateral action, not all
states concerned may have the same desire to cooperate. For example, an upwind
state may have only a small interest in cooperating in the reduction of air
pollution. It may even have an interest in not cooperating in order not to undergo
pollution reduction measures. Thus, some states may have an interest in
cooperation on certain issues and not on others. However, the states will
generally not be able to limit cooperation only to those issues they care for most.
Therefore, they may be willing to accept cooperation as a quid pro quo in order
to ensure general cooperation with the other states. It can thus be concluded that
rational states have overall interest in adopting an international order that
includes cooperation.
Consequently, rational states would prefer an international order that
enables cooperation to a system with only independently acting nations.
However, cooperation requires the renunciation of unlimited autonomy and
freedom. Unilateral decisions have to be given up in some areas, the interests
and needs of other states have to be taken into account, and activities like
investigation of common problems, research for possible solutions, regulation of
standards and processes, and jurisdiction over activities and enforcement of rules
have to be coordinated. Cooperation obligates a sharing of certain authority and
competence. Therefore, if one assumes an initial full distribution of jurisdiction
and power and a system without shared authority and cooperative elements, the
states would have to reallocate some authority and power in order to be able to
cooperate.
The Coase theorem indicates that, absent transaction costs, the initial
allocation of jurisdiction and power would not affect efficiency. If the initial
allocation of authority is not efficient, the states could engage in reallocative
574 Arizona Journalof Internationaland ComparativeLaw VOL 15, No. 2 1998
transactions leading to a more efficient outcome. 310 Therefore, in order to

determine whether to reallocate authority, the states will evaluate the efficiency
of sove:reignty, 311 in other words, they will measure the attractiveness of each
possible allocation of authority, and hence each possible definition of
sovereignty, 312 "by reference to whether it allows social goals to be achieved
more effectively. ' 313 Hence, if states are not content with an international order
of independence and full distribution of jurisdiction and power, but if they prefer
a system of cooperation, they will reallocate the initially fully distributed
authority. As soon as states realize that cooperation is more efficient than
individual action, they will start to collaborate and thereby, by giving up some of
their independence, implicitly accept that certain authority has to be shared by
several states together.
Of course there are also areas where autonomy is more practical and
more efficient than cooperation. Where environmental problem involve only 314
local impacts, it may be more practical and efficient to address them locally.
For example, it is probably more efficient to decide locally whether bicycle lanes
should be built.315 Other issues will be better dealt with not on a global, but on a
regional level where the similarities of the problems and the potential of common
interests are bigger. 316 Deciding whether regional or global approaches are
appropriate, depends upon the nature of the problem, the range of interests and
impacts involved and whether intraregional affinities or animosities further
310. Coase, supra,note 42; see also supra, text accompanying notes 103-107.
312. See supra,note 37.
314. See Richard Stewart, Environmental Quality as a National Good in a Federal
State, University of Chicago Legal Forum Symposium Rethinking Environmental
Protection in the Twenty-First Century (November 1-2, 1996), at 2-3 (on file with the
author). Stewart argues that most environmental problems are local and that therefore,
under a welfare economic approach, environmental measure should primarily be carried
out locally. He concludes therefore that "federal regulation should be limited to dealing
with significant and pervasive transboundary polluiton spillovers, including fostering
cooperative solutions among states to address regional problems." Id. at 3.
315. However, political failure of the local government could make a regulation on
a national level preferable. Concerning advantages and disadvantages of local regulation
and centralization, see generally Richard B. Stewart, Pyramids of Sacrifice? Problems of
Federalismin MandatingState Implementation of National Environment Policy, 86 YALE
L.J. 1196, 1210-22 (1977); Trachtman, supra note 123, at 65-70.
316. INIS CLAUDE, SWORDS INTO PLOWSHARES 94-95 (3rd ed. 1964). A certain
degree of regional identity however is not only a condition for regional approaches, it is
also an outcome of and fostered by regional integration. See, 'e.g., Julia Lehmann, Brother
vs. Partners - Contending Approaches to Regional Integration: A Comparison of the
League of Arab States and the Association of Southeast Asian Nations, 4, 21-24, 32-34
(forthcoming, on file with the author).
cooperation 17 Thus, while some issues are better dealt with locally, others
require regional or global cooperation. Absent transaction costs, the states will
find out through a process of reallocating competence and power at which level a
certain problem is best solved. Therefore, it is not surprising that in many areas
the states have in fact established supranational structures and institutions to
overcome regional and global interdependencies and common challenges
together.318 States have thereby indicated that it is preferable and more efficient
if their position within the international order includes an element of cooperation
and is not a position of unlimited freedom and independence. By initiating
cooperation, and hence reallocating jurisdiction and power, the states renounce
the claim that they are autonomous and totally independent and redefine
sovereignty as including an element of cooperation.
However, transaction costs do exist.3 19 Furthermore, Coasean bargaining
implies a cost-benefit-analysis between the degree of autonomy given up and the
advantage obtained thereby. But the existence of information costs, the
difficulties in evaluating the "real interests," and the problems of political failure
further increase the obstacles to determining through free Coasean bargaining
when cooperation is desirable and where authority is best allocated . 20 A "firm"-
in other words, an organization where hierarchy and authority determine the
allocation of resourceS21-and bargaining may be alternative modes for
organizing the same transactions.3 a Coase has demonstrated that the creation of a
"firm" may be an efficient means to replace competitive distribution of resources
where bargaining involves too many transaction costs.3 23 Additionally, "the
317. CLAUDE, supranote 316, at 94-97.

320. See also supra notes 17-29 and accompanying text concerning the
problematic and limits of economic tools to solve legal and social problems.
321. OLIVER E. WILLIAMSON, THE NATURE OFTHE FIRM. ORIGINS, EVOLUTION, AND
DEVELOPMENT (Olivier E. Williamson and Sidney G. Winter, eds., Oxford University
Press 1991), at 3.
322. WILLIAMSON, supra note 321, at 4, referring to Coase, infranote 323, at 19.
323. Ronald H. Coase, The Nature of the Firm, 4 ECONOMICAN.S. 386-405 (1937),
reprinted in: THE NATURE OF THE FIRM. ORIGINS, EVOLUTION, AND DEVELOPMENT 18-33
(Olivier E. Williamson and Sidney G. Winter, eds., 1991).
Coase addresses in "The Nature of the Firm" the question, why resources are not
always allocated by price mechanism [at 22], in other words, by the free market, but by a
firm, in other words, organization: If "co-ordination will be done by the price mechanism,
why is ... organization necessary?" Id at 19. Coase indicates that the main reason to
establish a firm seems to be that "there is a cost of using the price mechanism." Id. at 21.
The most obvious costs are information costs: the costs "of discovering what the relevant
prices are." Id. Furthermore, there are the "costs of negotiating and concluding a separate
contract for each exchange transaction which takes place on a market" Id. Finally, a firm
may emerge "where a short-term contract would be unsatisfactory." Id. e.g. a purchaser of
a service may be interested in a long term contract. But because of future uncertainties the
failure of the price mechanism to reflect spillover costs or benefits may occasion
merger between otherwise unrelated firms. '32 As there are transaction costs
which may impede competitive bargaining for reallocating fully distributed
jurisdiction and power, and as one of the reasons why such a reallocation would
be efficient is the existence of spillover costs, one could argue, that the creation
of a "firm" would solve the problem. The difficulties and costs of bargaining can
be circumvented by establishing an organization that determines where the
competence to deal with specific problems should be allocated. This "firm" or
"world government" would then decide, how much authority and freedom each
state has, and what amount of competence has to be shared with other states.
However, while transaction costs can be prevented by the introduction of a
"firm," difficulties in the determination and evaluation of the interests would
remain or even increase and other costs would occur. With the increase of the
firm or organization, the organization costs increase as well and will soon reach
the market costs. 325 Therefore, while at first glance it may seem attractive to
solve the problem of international allocation of authority by a "firm," a global
organization, or a "world government" where decisions may be taken
hierarchically and based on authority, the organization costs of such an institution
would probably soon surpass the costs of Coasean bargaining. These organization
costs include the costs of the total loss of independence and autonomy of the
state, and are probably one of the reasons why most international organizations
do not have the competence to adopt hierarchically binding decisions but rather
provide a forum for Coasean bargaining. 32 Yet, it may be that states overestimate
the costs of losing independence and underestimate the benefits of a common
organization with vast competencies, and that therefore a more stringent and
more formalized cooperation than actually adopted would increase efficiency and
overall benefits. Indeed, what is the value of formal independence if in fact
purchaser may be not able or willing to determine the details of the service. Therefore, a
contract may be concluded that leaves the details open to later decisions of the purchaser.
Coase concludes, that "[w]en the direction of resources ... becomes dependent on the
buyer in this way, that relationship which I term a "firm" may be obtained." Id. Thus, "by
forming an organization and allowing some authority ... to direct the resources, certain
marketing costs are saved." and it may be therefore more efficient to allocate resources
through organization than competition. Id.
324. WILIAMSON, supra note 321, at 4.
325. Coase, supra note 323, at 23.
326. One of the few examples where the states have agreed to create a "firm", in
other words, an institution where decisions can be taken based on authority and do not
need the endorsement of all states, is the European Community. There, the Commission
has the authority to adopt directives that bind the member states. In a few areas, the
Commission has even the power of "primary" or "original" legislative authority.
BERMANN, supra note 243, at 58. However, this authority is strictly limited and there are
increasingly complaints about the bureaucracy and lack of democratic fundament of the
EC.
The Efficiency of Cooperation: A Function Analysis of Sovereignty
nearly everything is interdependent? Furthermore, under an economic approach,

"independence" should not have a proper value, independence is merely an
organizational means to reach a certain outcome. The desirability of
independence, like the attractiveness of a certain allocation of authority, "should
be measured by reference to whether it allows social goals to be achieved more
effectively." 327 Thus, the value of independence is its ability to serve a desirable
objective. But if cooperation or even the establishment of a firm would be a
more effective and more efficient way leading to an even better result, then
independence should not be estimated too highly.
However, this article does not deal with the desirable amount of
cooperation and global governance, but with the question of whether the
desirable position of the states in the international order described by sovereignty
includes a cooperative element or whether it is merely a position of independence
and freedom. As indicated above, absent transaction costs, rational states would
reallocate a total distribution of authority in order to be able to cooperate. They
thus would replace an initial definition of sovereignty as independence and
freedom with a notion of sovereignty that includes cooperation. But the existence
of transaction costs may impede the reallocation of jurisdiction and power. One
possibility to avoid transaction costs would be to establish a "firm" that allocates
jurisdiction and power among the states. Another possibility to circumvent the
problem of transaction costs would be to allocate competence in a way to
minimize them and to try to provide starting positions that obviate the need to
transact. This could be accomplished by adopting an order to the effect that
states would come to these positions through Coasean bargaining if transaction
costs would not exist.32 The aim would be to adopt a definition of sovereignty
that enables to achieve social goals most effectively and most efficiently. 329 As
the achievement of social goals often will require or will be facilitated by
cooperation, such a definition would not merely equal sovereignty with
autonomy and unlimited freedom, but would include a notion of cooperation in
sovereignty.
But what amount of cooperation might such a definition of sovereignty
include? In the following paragraphs, I will try to approach this question with the
help of a formula, that is rather an illustration than a derivation of the conclusion,
that the amount of cooperation depends on the amount of interdependency. 330 As
describe above, the motivation to reallocate some authority is the aim to

328. Id.
329. Id..
330. This formula rather illustrates than derivates this conclusion, as the result is
already included in the definitions of sovereignty as autonomy + cooperation, and
autonomy as sovereignty minus interdependence. Other assumptions of course would lead
to other results.
collaborate, 331 and cooperation is impossible if states claim to be totally free and
independent. 332 Therefore, states would include in sovereignty an element of
cooperation.
Sovereignty may thus be defined as including autonomy and
cooperation: S = A + C.
Autonomy in turn may be defined as sovereignty minus
interdependence: A = S - I.
Autonomy thus equals Autonomy and cooperation minus
interdependence: A = A+C-I
This formula may be resolved to the conclusion, that cooperation equals
interdependence: C=I
In other words, this formula indicates that the amount of cooperation
depends on the amount of interdependence, and that the greater the
interdependencies are, the higher the degree of cooperation. This result is not
surprising. The reasons for cooperation lie in the interdependencies. Externalities,
problems of the commons, races to the bottom, and possibilities for economies of
scale, all relate to interdependencies among the states, and because of these
interdependencies it is difficult or impossible to solve a problem effectively
without coordinating and cooperating with other states. Consequently, the
stronger the interdependencies are, the less an autonomous approach makes
sense. This conclusion is underlined by the fact that the state's claim to be
independent and free has originated with the decline of an understanding of the
world as ideologically unified and interdependent as a "Christian
Commonwealth," a world "harmoniously ordered and governed in the spiritual
and temporal realms by the Pope and Emperor." 333 With the dissolution of the
acceptance of this ideological interdependence and the partition of the unified
world into separate entities that were understood as being independent, the states
began to reduce the notion of sovereignty to autonomy and independence.
However, today, this traditional concept of the independent nation-state is
increasingly undermined by regional and global interdependencies and thus
outdated. And, similarly to the new means of communication that have not
only changed communication itself, but also its object and the persons that are
communicating, 335 the globalization not only changed the relationship between
the actors, but also the self-understanding of the actors as well. In the light of all
the interdependencies and global impacts of most issues, states no longer may
understand themselves as fully independent and totally free, but as a part of a
global society. It is no longer possible to accept the inaccuracy of allocating
jurisdiction and responsibility over particular matters to single states and
331. Supra, part III.

332. Supra, 3rd paragraph of part IV.
333. Gross, supra note 305, at 28.
335. SALADIN & ZENGER, supra note 23, at 16.
governments, despite36 significant direct or widely dispersed and indirect effects on

another societies.'
Today, the vision of sovereignty as unilateral authority and supremacy
appears increasingly alien and strange. 337 An understanding of states as
participating in the international society and cooperating is much more
appropriate to the globally interwoven world. The international reality is
supporting the conclusion that the states are increasingly willing to cooperate as
the interdependencies grow. A world community process takes place in which
nation-states are no longer seen as isolated entities capable of making decisions
without regard for consequences to others. 338 Nationalities and borders become
less relevant, power and authority become more diffuse, there is a trend towards
seeking organized collective solutions, and the international community defers
less to the mystique of state sovereignty as independence and freedom, but
demonstrates a greater willingness to assert and enforce agreed international
community policies. 339 Today, an observer from another galaxy would be struck 340
by the extent and depth of international cooperation in the global community.
The reasons for this growing cooperation and community process include its
efficiency and effectiveness. Thus, with the growing recognition that most issues
involve interests or concerns of other states, the traditional autonomous
understanding of the position of the states within the international order has to be
replaced by the acceptance that this position includes a cooperative element. And
as the formula indicates, this cooperative element has to increase with the growth
of interdependence.
An example illustrating this relationship between cooperation and
interdependencies is the principle of subsidiarity. Subsidiarity is a principle for
determining at what level a regulation should be effected. 341 It was known long
before the European Community made it one of its fundamental organizational
principles. 342 Thus, for example, the dispute settlement in the United Nations is
dominated by the principle of subsidiarity: the parties are called to settle their
disputes primarily through peaceful means of their own choice, and the United 343
Nations Security Council takes action only if these means are not successful.
The European Community has introduced the principle in 1987 with Article
336. Joel P. Trachtman, Conflict of Laws and Accuracy in the Allocation of

Government Responsibility, 26 VAND. J. TRANSNAT'L L. 975, 987 (1994).
338. McDougal & Reisman, supra note 270, at 119.
339. Bilder, supranote 37, at 15-16.
340. McDougal & Reisman, supra note 270, at 107.
342. For the antique and medieval origins of subsidiarity, see CHANTAL MILLON-
DELSOL, LE PRINCIPE DE SUBSIDIARITE 9-36 (Presses Universitaires de France, Paris 1993).
343. FRIEDRICH BERBER, LEHRBUCH DES VWLKERRECHTS, BAND III:
STRErrERLEDIGUNG, KRIEGSVERHOTUNG, INTEGRATION 67 (2nd ed., 1977). See also UN
Charter art 33.
130r(4) of the Single European Act34 that required that action for the protection
of the environment should be taken by the Community only when the objectives
could be obtained better on Community level than at the level of individual
member states.345 The principle of subsidiarity was therefore legally binding for
environmental policy already before the Maastrich Treaty on the European
Union 346 introduced it generally with Article 3b and extended it to all activities of
the European Community.3 7 The principle indicates that the Community should
take action "only and in so far as the objectives of the proposed action cannot be
sufficiently achieved by the Member States and can therefore, by reason of the 348
scale or effects of the proposed action, be better achieved by the Community."
Hence, it has to be determined whether the problem being addressed "has
transnational aspects that cannot be satisfactorily regulated by action by Member
States. ''349 Thus, the more international and the more interdependent a problem is,
the more necessary is Community action. If, however, a problem is common only
to some but not to all member states, then Community action is not necessar as
this problem could and should be solved in cooperation between these states. 30
The principle of subsidiarity may be expanded as a general principle
beyond its use in the European Community and be generally used to determine at
which level-local, national, regional or international-issues and problems should
be resolved.351 The principle of subsidiarity has meanwhile emerged from
European Community law and become a general principle of international law. In
requiring international action or cooperation when this is more effective than
autonomous activity by individual states, subsidiarity can be defined as
establishing the rule that issues should be addressed at the level where they can
be addressed most effectively, and that regulation should be adopted at the level
344. Single European Act, Jul. 1, 1987, art. 130r(4), 25 I.L.M. 503, 515.
345. SANDS, supra note 2, at 546.
346. Maastrich Treaty on the European Union, 1992, 247 I.L.M. 31.
347. SANDS, supra note 2, at 549; Wils, supra note 71, at 85.
348. Art. 3b, para. 2 of the EC Treaty as amended by the Maastrich Treaty on the
European Union, supra note 346, at 258.
349. BERMANN, GOEBEL, DAvEY & Fox, 1995 SUPPLEMENT TO CASES AND
MATERIALS ON EUROPEAN COMMUNITY LAW 11 (1995).
350. Therefore it one can argue, that according to the principle of subsidiarity, the
European Community should not interfere in issues of Rhine navigation which concern
only a minority of EC-Members, but let the Rhine riparian states and Belgium deal with
these problems. The interference of the EC into problems that concern only some of its
Member states is not only not necessary, it involves also the risk that Member states that
are not concerned by the issue "sell" their support for a certain measure by asking for the
support for their position in another issue: Thus, Italy may condition its support for a
measure concerning the Rhine navigation on the support of Germany and France for
subventions for olive production in Italy. Thus, the involvement of the EC may lead to a tit
for tat of Italian olives for vessels on the Rhine.
where social goals can be achieved most efficiently. 352 Consequently, as it is

difficult, costly or even impossible to solve unilaterally a problem involving
factors and causes and effects in other states, the principle of subsidiarity requires
increasing cooperation and reallocation of competence and jurisdiction with
growing interdependencies. The acceptance of the principle of subsidiarity thus is
a concrete example that states are willing to reallocate fully distributed authority
and power in order to solve common problems, and that they accept that such
reallocation of authority has to increase with growing interdependencies. With
the principle of subsidiarity, states accept that their position within the
international order includes a cooperative element, and that the amount of
cooperation is determined by the amount of interdependency.
V. CONCLUSIONS
At the beginning of this article, I have introduced an international order

where all jurisdiction and power is fully and equally distributed among the states
and where the states are supposed to be entirely independent and free. 3 53 I have
then analyzed several issues and situations that involve the use of the
environment. 354 In each of these situations, the conclusion was that a system of
independently acting states is not efficient and that, consequently, rational states
would not be content with a full distribution of authority, but would prefer an
international order that includes a cooperative element. Cooperation is the only
effective means to meet the challenges of externality problems, the threat of a
race to the bottom and the risk of a tragedy of the commons. Furthermore,
cooperation is not only effective, it is also efficient, as it provides for huge
capacities of economies of scale. Therefore, under a functional perspective, an
understanding of sovereignty merely as freedom is inefficient and would be
replaced by rational actors. Rational actors would include in the definition of
their position in the international order,355 in other words, in the definition of
sovereignty, an element of cooperation.
After having concluded that "rational states" would be willing to give up
some of their independence and freedom in order to cooperate and that they
352. Id. at 49 n.3 and 99-100.

353. Supra, part II.C.
354. Supra, Part III.
355. As indicated supra in footnote 37, sovereignty is understood as the
description of a state's position in its relationship with other states, in other words, the
sum of its rights and obligations within the international order. A limitation of the content
of sovereignty to freedom and independence would change nothing to the conclusion of
this article, as the ultimate interest of international law and politics concerns the whole
position of the states in the international context. If sovereignty is understood merely as
autonomy, then sovereignty would just be one element of a states position within the
international order.
therefore would define sovereignty as including an element of cooperation, it is

not astonishing that states are in fact cooperating rather than acting
autonomously. There is a tremendous increase in the number of international
treaties, each of which includes a reallocation of power and authority, and a
proliferation of multinational institutions and international organizations, which
similarly include a reallocation of competence. There is nearly no area left where
international cooperation does not take place, and it seems, that the states have
given up claims to total independence and unlimited freedom.
Nevertheless, allegations of sovereignty as independence still occur and
often the states do not cooperate enough. This article has concluded, that absent
transaction costs, the reallocation of initially totally distributed authority would
take place in a rapid response to problems that can be solved more efficiently
through cooperation. However, there are transaction costs. This may be one
reason why in reality it often takes so long to adopt common policies and
cooperative measures. Other reasons include information costs, problem of
evaluation of real interests, and political failure. Therefore, in order to solve this
failure to cooperate adequately, the states should recognize that sovereignty
includes an obligation to cooperate, and that this obligation increases with the
growth of international interdependencies. This article, however, had the limited
aim to demonstrate that a cooperative understanding of sovereignty is more
"efficient" and more desirable than an understanding of sovereignty as
independence and freedom.
This article has assumed that states are driven by an economic and
political self-interest, by a desire to increase the welfare of their citizens and to
improve their influence and power by the search for strategic advantages as
compared to other states, and by an aspiration to prevent a threat to the peace and
stability which may result from global environmental degradation. It was the aim
of this article to show that states, in order to pursue these goals efficiently, have
to cooperate and that they therefore have a fundamental interest in including
cooperation in sovereignty. However, states are not driven only by self-interest in
an international system of competitiveness. States, like the people they represent,
are also driven by environmental concerns based on moral and aesthetic values,
the bearing for the well being of future generations and the aim to protect the
global ecosystem per se. If these concerns are considered further, then
cooperation seems even more natural.

PERREZ - 1998 - Efficiency of Cooperation A Functional Analysis of Sovereignty

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PERREZ - 1998 - Efficiency of Cooperation A Functional Analysis of Sovereignty

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Efficiency of Cooperation: A Functional

Analysis of Sovereignty [Article]

Item Type Article; text

Authors Perrez, Franz Xaver

Citation 15 Ariz. J. Int'l & Comp. L. 515 (1998)

Publisher The University of Arizona James E. Rogers College of Law

Journal Arizona Journal of International and Comparative Law

Rights Copyright © The Author(s)

Download date 04/10/2021 03:14:38

Item License http://rightsstatements.org/vocab/InC/1.0/

Version Final published version

Link to Item http://hdl.handle.net/10150/659297

Franz Xaver Perrez*

This article is a part of a larger project' analyzing the relationship

* Attorney, Bern, Switzerland; candidate for J.S.D. (New York University);

international order as an allocation of jurisdiction and power among the states. It

II. FUNCTIONAL ANALYSIS, COOPERATION

The Oxford English Dictionary defines functional as "[p]ertaining to or

the fact that many fundamental environmental problems cannot be solved by

homo oeconomicus (or "res publica oeconomica"), in other words, a person or

This article is based on a broad understanding of cooperation:

C. International Order as Allocation of Jurisdiction and Power

The international order can be understood as an allocation of

"allocation of power and responsibility," 3 permanent sovereignty over natural

authority to take decisions independently and unilaterally and to coordinate their

MI. DISSATISFACTION OVER FULL AND

As indicated above, the functional or economic approach of this article

1. Sources of Environmental Concern

Manufacturing and other processes of producing goods and services

international context, the adoption of stringent process standards may create a

skiing is allowed. See, e.g., Heliskiing:Keine Gespriiche, BERNER TAGwACHT, October 3,

containers. 5' Likewise, they may tax products perceived 53

2. Reasons for Collaboration

As indicated above, processes and products are the sources of multiple

55. See infra, part IIA.2.a.

extremism that is furthered by environmental degradation, 69 thereby contributing

69. DANIEL HILLEL, RiVERS OF EDEN at ix (1994).

psychic spillovers concern typically a collective good and it is impossible to

77. Stewart, supra note 50, at 1341.

OKOBIOLOGIE DES ARTENREICHSTEN NATURRAUMS DER ERDE 25 (1990). Thus, the

94. STEPHEN BREYER, REGULATION AND ITS REFORMS, 25 (1982).

perhaps each alteration of the ecosystem needs justification. Whatever the

107. Regulation could-under a purely economic approach-lead to a "inefficient"

externalities through bargaining is impracticable. 120 However, the Coasean model

b. Competitive Concerns, Race to the Bottom

Regulation prescribing technical standards and measures aimed to

competitive disadvantage to industries in neighboring states. 122 This distinction

122. WILLIAM R. LOWRY, THE DIMENSIONS OF FEDERALSIM: STATE GOVERNMENTS

bottom" justification for interstate or international harmonization of

i. There is No Competition Among States

1355 and n.87; Edith Brown Weiss, Environmentally Sustainable Competitiveness: A

of competitiveness of states has become pervasive among politicians and opinion

ii. EnvironmentalRegulation has No Impact on Industry Location

The "race to the bottom" phenomenon rests on the premises that

147. Trachtman, supra note 123, at 60 n.53.

Kirsten H. Engel concluded that indeed a substantial number of states relaxed

iii. Race to Desirability

flowing rivers of Britain. DAVID VOGEL, NATIONAL STYLES OF REGULATION:

178. Engel, supra note 125, at 298.

technical and institutional assistance, or to the adoption of market-based

c. Tragedy of the Commons

Another issue that may make cooperation desirable involves the

205. Id. at 2093.

resources, but this dominant strategy