Session 3: Other Strategies for International Cooperation Scott Barrett Johns Hopkins University School of Advanced International Studies.

Session 3:Other Strategies for International

Cooperation

Scott BarrettJohns Hopkins University

School of Advanced International Studies

A second reason for MP’s success2. By means of carrots, the MP got developing

countries to cooperate.

With homogeneous countries, side payments don’t help cooperation (Carraro-Siniscalco, 1993).

With heterogeneous countries, side payments only make a material difference under possibly unrealistic assumptions (Chander-Tulkens, 1994).

With strongly heterogeneous countries, side payments can facilitate cooperation (Barrett, 2001).

Model with Asymmetric Countries

• N countries; N1 + N2 = N. A country of type i (i = 1, 2) gets:

• Assume c > b2 and

• Stage 3: All countries play Pollute.

)(

),(

2211

2211

ZbZbc

ZbZb

iiA

iiP

./ 111 bcNN

Solution to Asymmetric Participation Game

• Stage 2:

• Stage 1:./ if

,/ if 0

211*

211*

kkbckZ

kkbcZ

iii

ii

.//,//

/for /1/,0

/for 0,//

112*21

*111

*2

*1112

222*22

*1

111*21

*1111

bcbbkkbckkbc

bcNbckbck

bcNkbckbc

Examples

• Ex. 1: N1 = N2 = 50, c = 100, and b2 = 6; b1 = 3, 1 = 0.5. Then there is just one equilibrium, {0,17}.

• Ex. 3: If b1 = 5.9 and 1 = 0.9. Then there are six equilibria, {19,0}, {18,1}, {17,2}, {16,3}, {15,4}, and {0,17}.

Reformulated Game

• With strong asymmetry:– Stage 1: Type 2 countries choose to be a signatory

or non-signatory.– Stage 2: Type 2 signatories choose collectively

whether to play Abate or Pollute and a money side payment m to be paid to every Type 1 signatory.

– Stage 3: Type 1 countries choose to be a signatory or non-signatory.

– Stage 4: Non-signatories of both types choose to play Abate or Pollute.

Solution

• Stage 4: All non-signatories play Pollute.

• Stage 3: Each Type 1 country will join the treaty iff

• Stage 2: Type 2 signatories will play Abate if and will offer a money side payment if

• Stage 1:

.11bcm

22 / bck 11bcm ./ 112 bck

./for -/1/,

//for /1/,0

1211**

2111**

1

22112**

22**

1

bcNbckbcNk

bcNbcbckbck

Implications

• For Ex. 1, the equilibrium with side payments is {50,33}, whereas without side payments it was {0,17}. Before, the aggregate payoff was 5,950; now it is 17,800 (with full cooperation, it would be 23,700).

• Fairness.

Ratification of the Montreal Protocol

0

20

40

60

80

100

120

140

160

180

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Nu

mb

er

of

Par

tie

s

TransitionEconomies

Industrial

Article 5

London Amendment

Third reason for MP’s success

3. By means of a stick—the threat of a trade restriction—MP achieved full participation and deterred non-compliance.

Trade and public goods provision

0 1 2 3 4 5 6 7 8 9

0.234

0.334

0.434

0.534

1 2 3 4 5 6 7 8 9 10

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

P

A

Underlying Free Trade Game

Number of others that play Abate Number of countries that play Abate

Leakage Rate

Though this game looks like the familiar PD, there is here substantial leakage.

Cooperation with trade restrictions

0 1 2 3 4 5 6 7 8 9

0.147

0.247

0.347

0.447

0.547

0 1 2 3 4 5 6 7 8 9

0.147

0.247

0.347

0.447

0.547

n

s n

s

IEA Game with Free Trade IEA Game with Trade Sanctions

Number of other signatories Number of other signatories

Final reasons for MP’s success

4. Threat to restrict trade against non-parties, made credible by substantial leakage.

5. Coordination achieved by minimum participation clause.

The difference Montreal made

Geographic Coordination GamesGame 1 Game 2

Analysis of Game 1

• Countries have payoffs where z is the number of close neighbors that play Abate.

• Case 1: if b = 1 and c = 1.5, a country will play Abate provided two or more of its neighbors play Abate. There are several equilibria.

• Case 2: if b = 1 and c = 0.5, a country will play Abate provided at least one neighbor plays Abate. Here there are just two equilibria: in one, everyone plays Abate; in the other, no one plays Abate.

, ,0 bzcAP

European Union Directives• Europe harmonizes many standards. Why don’t all

regions behave this way?• Suppose c = 2.5 and b = 1. Then for Game 1 there

is a unique equilibrium: no country plays Abate.• For Game 2, there are two equilibria. In one, no

country plays Abate. In the other, countries I, II, IV, and V play Abate and all others play Pollute.

• Closer integration provides the incentive for harmonization.

Automobiles Example

• Catalytic converters.

• Unleaded gasoline.

• European directives.

• Multilateral treaty: Agreement Concerning the Establishing of Global Technical Regulations for Wheeled Vehicles, Equipment and Parts (1998).

Oil Tanker Regulation (MARPOL)

Emission v. technology standards

ESs TSs

Verification Hard Easy

3-Mile Limit to Enforcement

Problem No problem

Prosecution by flag states only

Problem No problem

Need for reception facilities

Yes No

Technology standards:positive feedbacks

• The more countries that adopt SBT, the greater is the incentive for others to adopt it.

• US unilateral adoption of SBT probably not sufficient for SBT to become a global standard (what is the tipping point?)?

• In creating a “level playing field,” the agreement appeared “fair” to tanker owners and operators.

Tanker treaty games

P

AOLD

SBT

Lessons from the tanker study

• The performance standards treaty never entered into force.

• The technology standards treaty would only enter into force if half of all global tonnage participated.

• Currently there are 121 parties, making up 96% of global tonnage.

• Only a “second best” is sustained.• The choice of instrument can be strategic.

Other reasons for Kyoto’s Failure (?)

• In contrast to the MP, few countries have an incentive to do much unilaterally.

• Trade restrictions difficult to implement; severe restrictions probably not credible.

Lessons not learned

• Different problems have different solutions.

• First best outcomes may not be sustainable.

• Enforcement is the greatest challenge; must devise effective and credible enforcement mechanisms before negotiating general obligations.

A better climate treaty(?)

• Cooperative R&D protocol.• Technology standards protocols.• Short term declaratory protocols.• Adaptation assistance protocol.

• Though not ideal, there is no ideal treaty that is also enforceable. This may be the best second-best approach.