Wednesday, October 27, 2010

James Fearon. 1998. Bargaining, Enforcement, and International Cooperation

James Fearon, “Bargaining, Enforcement, and International Cooperation,” International Organization, 52, 2 (Spring 1998), pp. 269-305.

Summary by Adi

Background: Traditional cooperation theory suggests that different issue areas in international politics can be characterized by different strategic structures (for example, some cooperation issues can be modeled as a coordination game, while others may resemble the Prisoner’s Dilemma). In addition, a central claim of standard cooperation theory concerns international institutions and the shadow of the future: by providing a framework for regular and repeated interaction, channeling information to concerned parties, and lowering the transaction costs of monitoring, international institutions lengthen the shadow of the future, and thereby make cooperation more likely (since states with longer time-horizons will care relatively more about the future payoffs from cooperation, and since the prospect of extended interaction makes the threat of retaliation a meaningful deterrent to cheating).

Fearon’s theoretical argument: Fearon challenges the cooperation literature’s claims regarding the unique strategic structure of issue areas, and the positive relationship between the length of the shadow of the future and prospects for cooperation. With respect to the first claim, Fearon argues that cooperation issues, regardless of issue area, actually share a common strategic structure. This strategic structure is characterized by two sequential, linked phases:

  1.  The bargaining phase: before states can actually implement and participate in an international regime, they must bargain over issues of institutional design. Given that there are many ways to arrange and structure an international regime (regardless of issue area), and that states have different preferences over these issues given the distributional issues involved), the first challenge is to agree to the shape of the regime itself (the bargaining phase can be modeled as a coordination game).
  2. The enforcement phase: Once the parties strike a deal in the bargaining phase on the terms of cooperation, the next step is to implement, monitor, and enforce the agreement (this phase can be modeled as an iterated prisoner’s dilemma).
The formal model that Fearon builds to explore the implications of this integrated strategic framework for cooperation problems yields results that cut against the cooperation literature’s claims regarding the relative ease or difficulty of cooperation. The main implications are:

  1. When states are pessimistic about prospects for effective monitoring and the shadow of the future is relatively short, states will be unable to strike an agreement in the bargaining phase (they will either bargain unseriously or not at all, or merely discuss strategies for lengthening the shadow of the future). On the other hand, when states do bargain vigorously over the terms of cooperation in an issue area, we can infer that states are optimistic about the possibility of solving cooperation problems in the enforcement stage. And because the literature tends to sample cases in which serious bargaining actually occurred, it may understate the extent to which concerns about reneging and enforcement are real concerns. In other words, given the sampling bias towards cases in which significant bargaining occurred (precisely the cases in which we would expect enforcement issues to be tractable), the literature may be too sanguine about general prospects for solving the enforcement issue in issues of international cooperation.
  2. We should expect to see costly, non-cooperative standoffs in the bargaining phase especially when the shadow of the future is long (i.e. especially when the literature predicts a high likelihood of cooperation) .The logic is as follows: When states value future payoffs from cooperation highly, the expected long-run benefits of getting a favorable deal in the bargaining phase rise. At the same time, as the shadow of the future gets longer, and as the discount rate approaches zero, there is no difference (at the limit) between conceding today and conceding tomorrow. In other words, as the shadow of the future becomes longer, the costs of holding out fall, while the benefits of holding out rise. The result is a potential stalemate in the bargaining phase. On the other hand, where the shadow of the future is short, and states only expect to cooperate for a limited timeframe on an issue where enforcement prospects are good(for example, agreeing to coordinate exchange rates for a certain period), states will reach agreement in the bargaining phase relatively quickly (since the long-run stakes are not particularly high, holding out would be a waste of time).

Empirical Evidence

Fearon provides several suggestive cases where his theory might be able to explain the pattern of cooperation. For example, the US-Soviet Union arms race was a long, costly standoff; given the fact that we would expect a long shadow of the future in this case, standard cooperation theory would be relatively sanguine about prospects for cooperation. In fact, however, cooperation in this area was fraught with difficulty. Fearon’s theory explains the anomaly: the problem was not uncertainty over prospects for enforcement and mutual compliance, but the long shadow of the future and the serious distributional implications of any potential agreement, which raised the stakes in the bargaining phase, making agreement on the basic parameters of the regime extraordinarily difficult. 

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