Volume 85, Number 1

April 2010

Global Institutional Choice

Frederick J. Lee

The world faces collective action problems that are global in nature and scope, rendering nation-states unable to achieve desired goods individually. Issues such as global climate change and systemic financial risk create externalities that impel the existence and intervention of a world government to avoid suboptimal market equilibria, free-riding, and moral hazards. I submit the European Union’s principle of subsidiarity as an organic, legitimizing framework for global governance that both compels and cabins a world government. Subsidiarity optimizes social welfare by enabling a world government to achieve desired goods that nation-states would be otherwise unable to obtain individually because of collective action problems. But subsidiarity also limits a world government through a presumption in favor of local regulation as a matter of national autonomy and efficiency. The efficiency concern also enables subsidiarity to be an expansive principle for global governance because it accommodates both public and private forms of collective action. Public forms of collective action include public regulations, treaties between nations, and public institutions like the World Trade Organization. Private forms of collective action include free-market Coasian bargaining between private parties and the efforts of private international institutions like Greenpeace. Because subsidiarity accounts for these diverse institutions in a large and complex world, it is an ideal balancing principle for global institutional choice.