THE DESIGN OF A SELF-ENFORCING MULTILATERAL AGREEMENT AMONG OIL-lMPORTING COUNTRlES
STEPHEN W. SALANT
When all parties to an agreement are subject to the laws of a single jurisdiction, then anyone breaking that agreement can be subjected to legal sanctions. If, however, parties to an agreement are themselves sovereign states, no external force exists to assure compliance. In such cases the design of an agreement must somehow provide an internal enforcement mechanism or the agreement is likely to be violated. An agreement is regarded as a specification of how each party will perform in any contingency which might arise. An agreement is called self-enforcing if it provides no country with an incentive to violate its terms as long as every other country complies. This paper considers the possibility of designing self-enforcing agreements among oil-importing nations to achieve the following goals: (1) to expand government or private stockpiles in preparation for the next disruption of crude imports; (2) to insure that no country will impose price controls should an embargo occur; (3) to share restricted oil supplies during an embargo; and (4) to restrain import demand during a crisis Copyright 1984 Western Economic Association International.
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