Most-Favored-Nation Clauses and Clustered Negotiations

Though substantively important, centralized negotiations have received less theoretical attention than problems of centralized monitoring and enforcement. I address this gap by examining variation in a particular form of centralized negotiations that I call “clustering.†Clustering occurs when a state negotiates with several other states at the same time. Clustering enables states to avoid having to make concessions on the same issue to one state after another, and therefore has important distributional advantages. Clustering also centralizes bargaining within a regime, especially when several states cluster simultaneously in a “macro-cluster.†I propose several hypotheses about clustering. First, most-favored-nation (MFN) clauses are a necessary condition for clustering. They link the distributional conflicts among many pairs of countries and make centralized bargaining more likely. Second, increasing membership in the trade regime makes clustering more likely. This relationship between membership and centralization echoes Rational Design conjecture C3, centralization increases with number, though the causal mechanism differs significantly. Third, clustering provides distributional advantages to those who cluster. A state that clusters, such as France under the Méline tariff or Germany under Chancellors Leo von Caprivi and Bernard von Bülow, will make fewer concessions than one that does not.