Contracting States is a valuable contribution to understanding sovereignty in contemporary international politics that helps bridge the apparent contradiction between recognition that polities are both hierarchically related in terms of power and yet legal equals. Availing themselves of recent economic and legal theory, the authors argue that “the common proposition that the twin forces of internationalization and globalization are eroding state sovereignty is a clumsy conceptual approach to the topic” (pp. 205–6). Rejecting the traditional view of sovereignty as absolute, they point to a variety of hybrid arrangements featuring “intermediary,” “incomplete,” or “mixed” sovereignty in which sovereign rights are shared and exchanged. Hence, the authors approach sovereignty as a dynamic, contractual institution that gives rise to various forms of governance. In sum, they seek “to clarify why actors opt for a particular governance structure” and “how the particular choice of the initial sovereignty arrangement … then has downstream consequences for the contracting parties” (pp. 39, 40).
Since “sovereignty is rarely absolute” (p. 4), the authors argue persuasively that most forms of governance are neither purely hierarchic nor anarchic. Instead, hierarchy and anarchy are viewed as ends of a continuum ranging from imperial rule to absolute sovereign (Westphalian) independence. The precise point on this continuum at which any polity is located, the authors maintain, will depend on actors' preferences, power distribution, and the ability of parties to make credible commitments (pp. 40–41). Bargaining among competitors for sovereign rights produces either complete or incomplete contracts. Complete contracts regarding sovereign rights stipulate all future contingencies relating to governance at the outset and are not subject to renegotiation. However, the authors' principal focus is incomplete contracts that only partly define the distribution of sovereign rights, do not anticipate all future contingencies owing to “procedural and strategic uncertainty” (p. 19), reflect “bounded rationality,” and allow renegotiation in the future. Their most significant attribute is the distribution of “control rights” (“residual” or “property” rights) that define ownership and “use” rights (pp. 10, 27), which entail the right to make use of the territory and/or other assets of a polity. For Cooley and Spruyt, then, “sovereignty consists of a bundle of rights,” and, like “property rights, aspects of sovereignty can be split or shared by states and other international actors (p. xi).
Their argument is systematic, tight, and logical: The manner in which sovereign rights are distributed provides bargaining advantages to those with “control rights” because it allows them to reopen negotiations and increase demands at opportune moments for a greater share of sovereign assets. In chapter 2, the authors present a series of general and specific hypotheses. They predict that incomplete contracts incorporating shared or hybrid sovereignty will result when transaction costs—“uncertainty, negotiating costs, and enforcement costs” (p. 26)—associated with complete sovereignty or imperial control are high and impede concluding a complete contract beneficial to all negotiating parties. Where exclusive sovereign control of assets might cause conflict, such conflict can be avoided or postponed by “splitting or sharing sovereignty,” for example, over territory or military bases. The actor that holds residual or property rights over such assets will, however, enjoy bargaining advantages in future negotiations (p. 35), and such negotiations will usually move in the direction of complete contracts (p. 37).
The potency of this parsimonious theory is reflected in the range of cases it illuminates. The authors have selected, in their words, “a rich set of historical cases and issues” to illustrate the explanatory power of incomplete contract theory (p. 45). One set involves negotiations between imperial powers and their former colonies over distribution of the colony's assets. A second set focuses on American overseas basing arrangements, and the third, in some ways the most interesting and provocative, compares European and North American experience in regional integration.
The authors' first set of cases reveal how hybrid sovereign arrangements made it possible for former colonies and colonial powers to avoid or limit conflict in the course of decolonization. They compare the French retreat from North Africa, the Dutch withdrawal from Indonesia, and the British experience with its dominions, South Africa, and Singapore. The comparison describes how both initial incomplete contracts in the French and Dutch cases “unraveled” as bargaining leverage shifted (p. 93), as the theory predicts, to Algeria and Indonesia because the French and Dutch had significant credibility problems and the Algerians and Indonesians retained residual rights and had alternative partners.
The second set of cases meticulously explains how hybrid sovereignty agreements minimized instability in and disagreement over U.S. overseas basing arrangements during the Cold War, notably in the Philippines and the Azores. Since Manila retained residual rights over U.S. bases following Philippine independence, it was able to demand ever higher payments in the course of additional negotiations. The Portuguese, too, retained residual rights to bases in the Azores but demanded political support for their colonial policies as the price Washington would have to pay. With the end of Portugal's colonial empire and, later, the end of the Cold War, the bases in the Azores lost much of their value, significantly reducing Portugal's bargaining leverage. The authors conclude that the reorganization of U.S. military basing policies to create a network of small bases begun in 2003 “is very much consistent with the bargaining logic outlined by incomplete bargaining theory” (p. 137).
The final set of cases extends the analysis to the sharing of sovereign rights between states and supranational institutions in the course of regional economic integration and the impact of such arrangements on later negotiations and agreements. The chapter is notable for its comparison of how European institutions evolved by means of incomplete contracting in contrast to the U.S.-dominated NAFTA and its experience with a complete contract. In Europe, institutional elaboration resulted from an incomplete contract. In this case, although states retained residual sovereign rights, supranational institutions like the European Court of Justice increased their authority over time because of the “relative symmetry of power [of states]” (p. 157), which allowed for credible commitments and state interdependence that encouraged integration. By contrast, NAFTA entailed a complete initial contract because U.S. hegemony “would have made it difficult to complete binding institutional mechanisms” (p. 175).
In their final chapter, the authors illustrate the theory's versatility and its potential policy implications by briefly examining additional cases, including the danger of federalism in managing ethnic and national disputes within states, Israeli-Palestinian bargaining over water rights, and the transition of Kosovo from international administration to semi-sovereign independence. In reviewing their cases, the authors make a strong case to the effect that, while realist and constructivist explanations can account for some of the variance, incomplete contract theory provides more robust explanations.
In sum, Contracting States sheds new light on the changing nature of state sovereignty, examining how sovereignty is frequently divided and explaining that how this is done has important later consequences for the actors involved. Although it would have been desirable for the authors to account more directly for the role of domestic politics and regime type, this can perhaps await future research. What is clear is that Contracting States is an important book that warrants the attention of international relations scholars.
