Bargaining, enforcement, and international cooperation.

Introduction

A cluster of arguments referred to as "cooperation theory" or "neoliberal institutionalism" stands as one of the more interesting and important developments in international relations theory in the last fifteen years.(1) Focused on the problems of whether and how states might cooperate for mutual advantage despite the absence of supranational government (anarchy), these arguments may be summarized as follows.

Cooperation theorists argued that different international issues and issue domains - trade, finance, arms control, the environment, and so on - may have different strategic structures, and these crucially affect the prospects for international cooperation and the nature of the specific problems states must overcome to achieve it. The different strategic structures have typically been characterized by reference to simple 2 x 2 matrix games such as Prisoners' Dilemma, Chicken, Harmony, Deadlock, Stag Hunt, and Pure Coordination.(2) Analysts have focused primarily on Prisoners' Dilemma problems and, to a much lesser degree, on coordination problems.

Scholars working in the realist tradition had already suggested that cooperation may occur when states are "playing a coordination game" such as allying against a common threat or choosing telecommunications standards. They argued, however, that cooperation is more difficult in Prisoners' Dilemma-like situations, which they imply are more prevalent and more fundamental in international politics.(3) In response, cooperation theorists observed that if states interact repeatedly on a particular issue - which they typically do - cooperation in Prisoners' Dilemma-like situations might be sustained by mechanisms of conditional retaliation such as Tit-for-Tat. For example, mutually beneficial cooperation in satellite reconnaissance might be sustained by the implicit threat that "if you try to shoot down our spy satellites, we will shoot down yours." A key condition for such mechanisms to work is that the "shadow of the future" be long enough - the states have to care sufficiently about future payoffs and expect that future interactions are likely enough for the threat of retaliation to deter cheating. Cooperation theorists further suggested that international institutions might serve to extend the shadow of the future by regularizing interactions and to facilitate the information flows and monitoring necessary to make mechanisms of conditional retaliation work.

In this article I develop two main arguments beating on these central propositions of cooperation theory. First, while conceiving of different issue domains in terms of different strategic structures may be heuristically useful for some purposes, doing so misunderstands the problem of international cooperation as state leaders typically face it. I argue that understanding problems of international cooperation as having a common strategic structure is more accurate and perhaps more theoretically fruitful. Empirically, there are always many possible ways to arrange an arms, trade, financial, or environmental treaty, and before states can cooperate to enforce an agreement they must bargain to decide which one to implement. Thus, regardless of the substantive domain, problems of international cooperation typically involve first a bargaining problem (akin to various coordination games that have been studied) and next an enforcement problem (akin to a Prisoners' Dilemma game). To specify and explore this conception analytically, I develop a game-theoretic model that depicts problems of international cooperation as having two linked phases. In the first phase, states bargain over the particular deal to be implemented in the second, "enforcement phase" of the game, which is modeled as a repeated Prisoners' Dilemma.

Second, using this model I show that the bargaining and enforcement problems can interact in an interesting way that cuts against the received wisdom of cooperation theory. Whereas cooperation theorists argued that a longer shadow of the future makes cooperation sustainable and so more likely, the analysis here suggests that though a long shadow of the future may make enforcing an international agreement easier, it can also give states an incentive to bargain harder, delaying agreement in hopes of getting a better deal. For example, the more an international regime creates durable expectations of future interactions on the issues in question, the greater the incentive for states to bargain hard for favorable terms, possibly making cooperation harder to reach. The shadow of the future thus appears to cut two ways. Necessary to make cooperative deals sustainable, it nonetheless may encourage states to delay in bargaining over the terms.(4)

These arguments and the model are presented in the second and third sections of the article. In the fourth section I briefly assess empirical implications of these theoretical claims, arguing in particular that the theory may make better sense of the early Cold War arms competition than received cooperation theory can. The conclusion compares the bargaining problem to the relative-gains problem and notes some implications for understanding international regimes.

Strategic Structure and Problems of International Cooperation

Whether the goal is to control arms racing, reduce the risk of preemptive war, limit global environmental damage, stabilize exchange rates, or reduce protectionism in trade, state leaders need to coordinate state policies and the actions of the relevant state bureaucracies if they wish to gain various benefits of cooperating. Cooperation theorists proposed that such diverse problems might be usefully analyzed by focusing on the strategic structure of the decision problem faced by state leaders contemplating cooperation. As exemplified by the 1985 World Politics volume titled "Cooperation Under Anarchy," strategic structures were understood in terms of simple 2 x 2 games, which include a description of two policy choices available to each state (typically labeled "cooperate" and "defect"), an outcome associated with each of the four combinations of policy choices, and preferences for each state over the four outcomes.(5)

As noted earlier, the various arguments making up cooperation theory advance two, not entirely consistent, propositions. First, different issue domains have different strategic structures with different consequences for the likelihood of international cooperation. Second, many or even most domains have the structure of a repeated Prisoners' Dilemma and so may allow international cooperation by means of a Tit-for-Tat-like regime if state leaders perceive a long enough shadow of the future. Because it more directly challenges the realist claim that cooperation under anarchy is very difficult, the second proposition has attracted the most attention and controversy, chiefly in the form of the relative-gains debate.(6) In addition, empirical work drawing on cooperation theory has generally attempted to characterize different international issue domains and problems as repeated Prisoners' Dilemmas,(7) while empirical instances of coordination problems have been relatively neglected.(8)

Despite the greater attention paid to the second argument, I would argue that the first set of propositions is integral to the way that cooperation theory envisions international politics. Further, the "different strategic structures" argument has (often unwittingly) shaped the major questions asked by scholars working in this research program.

Regarding the importance of the argument, two of the earliest theoretical articles in cooperation theory maintained that empirically, states face two types of problems of international cooperation, labeled "coordination versus collaboration" by Arthur Stein and "coordination versus Prisoner's Dilemma" by Duncan Snidal.(9) Both Stein and Snidal argued that differences in international regimes could be explained according to whether they focused on solving a problem of coordination or collaboration (Prisoners' Dilemma), which was held to depend on the nature of the issues in question. For example, Stein saw the Strategic Arms Limitation Talks (SALT) agreements, market-sharing arrangements like the International Coffee Agreement, and international "commons" dilemmas as regimes addressing Prisoners' Dilemma - like problems, whereas product standardization agreements and international radio and airplane traffic conventions were cited as instances of regimes focused on problems of coordination.(10)

The same thesis is very much in evidence in the "Cooperation Under Anarchy" volume, where Kenneth Oye and other contributors made the "payoff structure" in different 2 x 2 games one of their three major independent variables for explaining variation in cooperation across cases and issue domains.(11) Oye in fact ranged the several 2 x 2 games used by the authors on a rough scale reflecting the degree to which the strategic structure in question was hypothesized to favor cooperation.(12)

The idea that different international issues and issue domains have different strategic structures has had at least three important consequences for the evolution of research on international cooperation. First, by leading scholars to ask "Which 2 X 2 game best characterizes the specific empirical case that I am interested in?", the idea of different strategic structures inevitably led scholars to focus on the question "What are the preferences?", understood as how the states in question would rank the four outcomes deemed possible by the theoretical setup. But cooperation theory provided no guidance here, and the problem of how to assign preferences often seems so difficult or controversial as to render the exercise pointless - most of the "action" of the theory is loaded into the arguments about what the right preferences are and how exactly to characterize what "cooperate" and "defect" mean in a particular setting.(13) Mainly due to this problem of assigning preferences, analysis of problems of international cooperation in terms of different 2 x 2 games has not blossomed, although on the plus side the problem helped lead researchers to look more carefully at how multiple domestic actors with diverse goals interact to influence the foreign policy preferences and strategies of the "chief of government."(14) As I will argue, one reason that assigning preferences to define the "right" 2 x 2 game is so difficult as an empirical matter may be that such games are simply bad models of the strategic problem that leaders typically confront when they are contemplating international cooperation.

A second significant consequence of the "different strategic structures" idea has been a running debate over the relative empirical importance of Prisoners' Dilemma and coordination problems as obstacles to international cooperation. This is seen most clearly in Stephen Krasner's "Global Communications and National Power," where he argues that coordination problems such as the 2 x 2 game Battle of the Sexes are empirically more prevalent than problems of "market failure," a reference to Prisoners' Dilemma-like problems of cheating and enforcement.(15) This framing suggests an either/or choice in characterizing which strategic structure, coordination or Prisoners' Dilemma, is most common and important in international relations. The idea of "coordination versus Prisoners' Dilemma" also appears among proponents of the relative-gains argument, whom Krasner cites as providing supporting evidence for his thesis and who cite Krasner in turn, thus establishing a loose (and, as I later argue, dubious) association between coordination problems and the relative-gains argument.(16)

The third significant consequence of the "different strategic structures" idea is the most relevant for the argument of this article. By defining the realm of interesting possibilities as coordination and Prisoners' Dilemma games, cooperation theorists fostered considerable confusion about how international relations scholars should think about international bargaining. The confusion is due to the fact that bargaining problems are not well represented by any 2 x 2 game. Indeed, coordination games such as Chicken and Battle of the Sexes are such minimal models of the bargaining problem that in the international relations literature they generally are not understood as being about bargaining at all.(17) For this reason and because of the "either coordination or Prisoners' Dilemma" framing, many scholars using cooperation theory treated repeated Prisoners' Dilemma inappropriately as a model of international bargaining, when it is better understood as a model of the problem of enforcing a particular agreement given short-run incentives to renege.

In the classic theoretical sense elaborated by John Nash and Thomas Schelling, a bargaining problem refers to a situation where there are multiple self-enforcing agreements or outcomes that two or more parties would all prefer to no agreement, but the parties disagree in their ranking of the mutually preferable agreements.(18) As an empirical matter, a second characteristic feature of bargaining problems is that they are dynamic. They are resolved, if at all, through time, in sequences of offers and counteroffers or with one or both parties "holding out" in hope that the other will make concessions.(19) A final empirically significant aspect of bargaining problems is that they typically involve uncertainty or private information about what the other side's true "bottom line" is and thus possibilities for bluffing and misrepresentation.

Given this understanding of the nature of a bargaining problem, it is immediately apparent that virtually all efforts at international cooperation must begin by resolving one. Regardless of whether the specific domain is arms control, trade talks, exchange-rate coordination, or environmental regulation, there will almost invariably be many possible ways of writing the treaty or agreement that defines the terms of cooperation, and the states involved will surely have conflicting preferences over some subset of these various possibilities. Further, in practice the resolution of such a bargaining problem will take place, if at all, in a series of offers and counteroffers or with states holding out for their preferred option. And of course uncertainty about the minimum that the other side would accept is often important in international negotiations.(20)

At the same time, most efforts at international cooperation also involve issues of monitoring and enforcement. Once a deal is struck on the terms of cooperation - as at a GATT round or an IMF negotiation, for example - the next task is typically to implement, monitor, and enforce the agreement. A very few international agreements (such as air traffic control guidelines) may be largely self-implementing and self-enforcing without any special arrangements. But in the majority of cases, the parties involved recognize that there may be incentives for them to renege in various ways on aspects of the deal, and they set up governance structures - regimes - of varying complexity to cope with this.(21)

It follows, then, that the empirical problem faced by states contemplating international cooperation cannot be grasped by a theoretical apparatus that poses an either/or distinction between coordination and collaboration problems. In a broad range of empirical settings, getting to international cooperation involves first a bargaining problem and, second, issues of monitoring and enforcement. This simple observation is obscured by the theoretical apparatus of received cooperation theory. In the next section I consider a model in which the problem of bargaining (coordination with conflicting interests) and enforcement are combined in sequence in order to examine how they interact.(22)

Before developing this conception, a further distinction should be made, one that is also unclear in received cooperation theory. Empirically, problems of international cooperation may involve either (1) bargaining over the division of new or potential benefits; or (2) attempts to renegotiate an existing cooperative arrangement, where one party threatens to revert to noncooperation if the present terms are not adjusted. In the first class of cases, something happens to "open up" a set of deals that both or all parties would prefer to the status quo. For example, new ideas or more consensual scientific knowledge may lead state leaders to see potential benefits from cooperation on environmental problems, as with the Mediterranean Plan, the 1979 Convention on Long-Range Transboundary Air Pollution (LRTAP), the Montreal Ozone Protocol, or certain aspects of the Law of the Sea Treaty.(23) Alternatively, a change in domestic political circumstances may lead government leaders to see new potential gains from collaboration, as when a political party with stronger commitments to liberalizing trade comes to power or the costs of arms racing or agricultural price supports generate new domestic political pressures.(24) And, of course, technological and economic changes can produce new benefits obtainable by international cooperation, as when the globalization of capital markets creates gains for international macroeconomic and exchange-rate coordination, or when satellite technology makes possible arms control monitoring that in turn makes mutually beneficial arms treaties newly feasible.

In the second type of problem the states involved have already negotiated, tacitly or explicitly, a cooperative arrangement, and some change leads one or more to want to renegotiate the terms. In recent years, threatened trade wars among the OECD countries provide the most striking examples - one state (typically the United States) threatens to begin a mutually damaging trade war by unilaterally imposing tariffs or other protective measures unless the others renegotiate more favorable terms of market access.(25) In terms of strategic structure, problems of this sort are similar to cases of international crisis bargaining in which one state threatens military action and war (mutually costly noncooperation) in the event of failed efforts at renegotiation.(26) It should be noted, however, that once the phase of "trade war" or costly noncooperation has begun, problems of international renegotiation are structurally similar to problems …