Between Markets & Treaties: International Law, Agency Costs and the Theory of the Firm

Abstract

This Article applies the economic theory of the firm to the phenomena of stakeholder monitoring and enforcement of corporate compliance with international law. Descriptively, it identifies both a problem and solution to stakeholder “rational apathy”: Stakeholders are rationally apathetic because they confront high per capita information, coordination and conflict costs but low per capita benefits. But a process of sequential stakeholder enforcement can lower these costs associated with subsequent stages. It identifies four types of stakeholder enforcement – predicative, amplification, facilitative, and direct - and explains how each lowers detection, verification and transmission costs and increases the benefits each stakeholder receives from enforcement by socializing stakeholders to share preferences, thereby reducing conflict and coordination costs. Critically, international law enforcement offers stakeholders economies of scale by converting particularized wrongdoing into violations of global norms. Normatively, this Article draws upon comparative institutional analysis to identify when stakeholder enforcement is a preferable institution for enforcing international law against corporations. It concludes that stakeholder enforcement may be valuable for deterring future violations of international law but has limited effect for punishment or offering reparations.