| In international cooperation, bargaining failure occurs if the parties cannot achieve a mutually acceptable compromise. I study international cooperation problems in which compromise itself is inefficient, and thus equivalent to a bargaining failure. In international standard setting, for example, incompatibility of existing domestic standards often prevents efficient compromise. When is compromise inefficient, and how are states to avoid bargaining failure in such circumstances? I argue that inefficient compromise results from increasing returns, which prove prevalent in international cooperation, and focus on the problem of institutional design in bilateral and multilateral cooperation. In bilateral cooperation, I find that (i) international arbitration is an optimal institutional design to avoid inefficient compromise and (ii) states can prevent inefficient compromise in the future by coordinating the development of their nascent domestic institutions. In multilateral cooperation, I find that (iii) issue linkage and delegation of decision-making power to an international committee can cause inefficient compromise and (iv) states must sometimes design weak international agreements to avoid inefficient compromise. |
