Reposted from the Marriner S. Eccles Institute.

Two countries bargain with each other over a new treaty. Any resulting deal must go through a ratification process within each nation. How should a nation bargain to get the best deal? What ratification rules make the most sense?

These issues are fundamental to the design of national institutions. The U.S. Constitution, for example, requires the U.S. Senate to ratify any treaty by a two-thirds supermajority. Further, the Senate has in practice delegated much of the final negotiation of treaties to the Senate Foreign Relations Committee. Do these two practices—supermajority requirements and delegation—lead to better negotiated outcomes?

Using the mathematical tools of noncooperative game theory, Ravideep Sethi, an assistant professor in the Eccles School of Business’s Division of Quantitative Analysis of Markets and Organizations (QAMO), and co-author WonSeok Yoo, an economist with Bates White Economic Consulting, examine these questions. Their paper, published in the journal Games and Economic Behavior, shows that while supermajority rules can help a nation strike a better deal, delegation is not a smart negotiating tactic.

“Our key insight is that institutional structures can impact how intensely group members compete against each other to extract the gains from a deal. The winners and losers can be played against each other,” Sethi said. “This fact then feeds back to influence the deals that are proposed by each side in the negotiation.”

Sethi explained that a treaty under consideration in the Senate might be good for Utah, but bad for its neighbor Idaho. If only a simple majority of senators is needed for passage, then the other party to the treaty—Canada, for example—can exploit this by proposing a deal that is good for just 26 of the 50 states. If, in contrast, a two-thirds supermajority of senators is required, then Canada must propose a deal that will attract yes votes from 34 states. The U.S. supermajority rule limits Canada’s ability to play the states off against each other and increases the overall value captured by the U.S. in the negotiation.

Delegation can also feed into the winners-and-losers effect but in an opposite way.
“When negotiations are delegated to a chosen subgroup, the group members who are not in the subgroup realize they will be unable to craft a deal that benefits them,” Sethi explained. “This means they are more willing to accept a not-so-great deal, which weakens the group’s overall ability to bargain effectively.”

As a concrete example of these effects, Sethi and Yoo highlight the 1944 treaty between the United States and Mexico in which the two nations agreed on how water in the Rio Grande and the Tijuana and Colorado rivers would be allocated. Interestingly, this deal created stark winners and losers among U.S. states. In exchange for a larger share of Rio Grande water, usable only by Texas, the U.S. agreed to give Mexico a larger allotment of the Colorado River, which runs through several Western states and is used mostly by California farmers.

The elements of delegation and supermajority were both present in this setting. Important elements of the negotiation were delegated to the Senate Foreign Relations Committee, chaired at the time by Democratic Sen. Tom Connally of—you guessed it—Texas. While this delegation may have allowed Mexico to make proposals benefitting Texas but against California’s interests, this effect was somewhat muted by the Senate’s requirement of a two-thirds majority to approve the treaty. Any agreement would require the approval of at least 64 of the 96 senators, thus limiting Mexico’s ability to pit the states against each other in ratification.

Sethi emphasized that international treaty negotiations are not the only application of his analysis. “Bargaining on behalf of a group is common in business settings as well,” he said. “Labor unions negotiate with employers, but the gains from any union contract might be spread unevenly across union members. And this means the delegation and supermajority choices made by the unions could have a big effect on outcomes.”

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The study, “Group Bargaining: A Model of International Treaty Ratification,” appears in the September 2024 edition of Games and Economic Behavior.

• Kendra Steele Marriner S. Eccles Institute, communications director
  Kendra.Steele@eccles.utah.edu