Fair distribution of welfare gain

Abstract

International institutions play the major role in the current global governance to provide global public goods (GPG) efficiently and to regulate cross border externalities (CBE) effectively. Also there are many international institutions. But the global community has been continually confronted with new CBEs, new GPGs and, thus, the need to implement new or to reform existing international institution. Welfare improvement is a necessary but not a sufficient condition for emerging international institution. In addition to the welfare improvement, an agreement of the potential members about the distribution of the welfare gain between them is a further necessary condition, while both together are necessary and sufficient for the emergence of an international institution. In this paper, we are going to discuss how the potential members can achieve an agreement to distribute the welfare gains of setting up an international institution. Equity considerations have a strong influence on observed payoff divisions. The equity principle is the formal structure of equity consideration. This principle is well known in the social psychology literature. The equity principle in international politics is equity consideration in respect of the strength of players. This can provide a norm or a fundamental principle of international bargaining to distribute the net welfare gain of international cooperation (IC).