Reversing the Two Wrong Turns in the Economic Analysis of International Law: A Club Goods Theory of Treaty Membership & European Integration

Research that uses economic concepts to analyze international law has generated an impressive body of insights but, as this article will argue, it has nonetheless been limited by a pair of methodological missteps. First, law-and-economics scholarship generally assumes that the standard dilemmas of international cooperation do not apply in the case of the European Union, on the grounds that the EU represents a single super-federation rather than an agreement among sovereign states. That position has proven implausible after Brexit, however, and cannot account for the current unraveling of legal coordination across Europe. Second, the literature assumes that treaties are designed to facilitate the provision of global public goods, and has not incorporated the related economic theory of club goods. That decision is also problematic because a vast body of international agreements concern joint investments in club goods, which raise a distinct set of design problems. Thus, the two “wrong turns” in the economic analysis of international law consist of a misinterpretation of European integration and a neglect of club theory. This article not only identifies these gaps in the scholarship but also further shows that they remedy one another when analyzed in parallel. On one hand, club theory supplies a framework that can be used to construct a unified explanation of the three recent waves of European disintegration: the Eurozone financial crisis, the collapse of Schengen Area border controls, and Brexit. This includes their underlying causes, the limits of available policy responses, and implications for the EU going forward. On the other hand, a close examination of the treaties underlying European integration proves useful for understanding how other international club good agreements work. Specifically, it reveals that the legal elements that regulate entry and exit in those agreements serve radically different functions than is otherwise predicted by the prevailing theories of treaty design. The result is to flip some classic debates in international law — such as whether treaties “screen or constrain” member states, and the extent to which “flexibility” in treaty obligations can promote international cooperation — on their heads.