Cooperation (Under Anarchy) In Intl. System

Front 1

Argument

Back 1

According to rationalism, international institutions can help overcome the cooperation problems stemming from state self interest within an anarchic context.

The creation and design of WTO and IMF provide illustrative real world examples of such cooperation. Specifically, both the WTO and IMF help overcome cooperation problems related to (i) cheating; (ii) enforcement; and (iii) information transparency among state actors.

Front 2

Define PD

Back 2

The PD provides a framework to test various scenarios that may result in defection or cooperation between two or more parties:

In the simplest form of the game, a player’s preference is to defect while its opponent cooperates (“DC”). Further, the second best alternative to DC is if both parties cooperate (“CC”), which is preferable to the third best alternative of mutual defection (“DD”). The least appealing outcome is if a player cooperates while its opponent defects, thereby reaping the benefits of the other player’s cooperation (“CD”). Therefore, the order of preference is DC>CC>DD>CD.

A single play PD is unlikely to bring cooperation because each player acting on a rational basis will be motivated to defect to reach their preference of DC, but both will be overall worse off than if they had cooperated since they will each only achieve their third preference.

Front 3

Realism & cooperation/institutions

Back 3

Realism = a theory that present the Prisoner’s dilemma as the central feature of international relations between states.

Anarchy eliminate the chance of enforceable agreements to cooperate => intl. relations are marked by insecurity, competition and conflict, even if there exist strong incentives to cooperate. Anarchy can defeat even the best intentions.

According to realism, we cannot escape the PD. Cooperation in the international system is difficult and unlikely. Because states are primarily concerned with maximizing their power, they are afraid to trust one another.

Front 4

Rationalism & cooperation/institutions

Back 4

Basic assumptions of RI (Keohane):

Rationalism accepts realist' main assumptions about the state as a rational, unitary, utility seeking actor operating in an anarchic system and seeking to maximize its power.

However, also crucial differences between rationalism and realism:
i) In post-cold war environment, there exist interdependende between states implicating that most intl. interactions between states are plus-sum games (not zero-sum games as assumes by realism).
ii) interests acc to rationalism is to a lesser extent determine only based on power but also economic, culture etc. This also implies that gains, acc to rationalism, are seen as "absolute" rather than "relative".
iii) Hence, cooperation is possible and desirable, although states' still have "mixed motives". Intl. institutions can help them eliminate obstacles to cooperation, why states accept them to have a constraining affect on their behaviour.

How international institutions can help states overcome PD:
RI hypothesizes that international institutions can overcome a state’s tendency to defect:

a) repeated games raise the cost of defection: intl. institutions allow for iterated games so that the single play PD is repeated continuously, despite the anarchic environment. Repeated games encourage states to cooperate because of potential future costs of their defection= states prefer to interact with those states that have a reputation for trustworthiness.

b) reduce uncertainty by providing information: institutions promote transparency by providing information to members and operating as an independent source of such information. Moreover, institutions assit with monitoring and enforcing state behaviour. Repeated state cooperation = most likely to occur when defection can be identified, and defector punished.

c) Lastly, international institutions may assist in reducing transaction costs related to ad hoc agreements.

Front 5

Example: WTO

Back 5

The WTO provides an illustrative example of how international institutions can overcome PD cooperation problems.

For example, the PD within the area of international trade could be trade liberalization:
-Cooperation would mean trade liberalization through the reduction or elimination of trade barriers.
-Defection would mean the implementation of such barriers to trade.
=In a single play PD, both states would most likely act to maximize their utility because of fear that their opponent would fail to reciprocally reduce trade barriers. Therefore, both State A and B would defect.

In order to understand the ways in which the WTO assists with resolving cooperation problems, we can break such problems down into 3 categories: (a) cheating; (b) enforcement; and (c) information transparency.

a) First, the WTO promotes trade liberalization by formalizing each state’s obligation to reduce barriers to trade, decreasing the chance that a state will defect. Further, the WTO enables a framework within which repeated trade negotiations could function.

b) With regards to enforcement, the WTO has developed the Dispute Settlement Mechanism, where a member can issue a formal complaint against another state that has deviated from WTO rules. The DSM provides a mechanism through which defection is identified and punished, though implementation of DSB decisions is ultimately left to states.

c) Lastly, the WTO operates to reduce incomplete information. By providing reports on procedures and collecting information on international trade, the WTO’s secretariat acts as a source of neutral, verifiable information.

Front 6

Example: IMF

Back 6

In the case of the IMF, the PD game may be whether to lend through the IMF=
Borrowers could choose to cooperate by abiding by IMF conditionality or defect by choosing to not accept IMF funds. Lender states could either (a) lend through the IMF or (b) (i) choose to not lend at all or (ii) lend, but through bilateral means. The lender state choose to defect because it wishes to retain control and direction over its funds because of mistrust how the funds are handled by the borrower once they are distributed. The borrowing state, will be likely be to defect because it is unwilling to submit to IMF conditionality provisions.

The IMF’s design succesfully eliminates these problems in several ways:

a) reduce cheating: The IMF prevents cheating by threatening to withhold potential payments. Moreover, the chances of cheating are further reduced because IMFs loans impose information requirements on borrowers to report their progress. Cheating is also reduced through the institutionalization of IMF loans or the iterated games that are played. Because borrowers and lenders will repeatedly engage with each other through the IMF framework, the “shadow of the future” provides less incentive to cheat.

b) With regards to enforcement, the IMF enforces its provisions through a combination of political and financial pressure. First, it can withhold distributions to borrowers in the case of noncompliance, but it can also threaten to make future new loans contingent on a borrower’s performance on an existing facility. Moreover, the IMF, as a collective body, theoretically has greater legitimacy than a single state which may act in its own interest. Therefore, it has more political influence which can threaten the “reputation and credit rating” of the borrower.

c) Lastly, with regards to transparency, the IMF provides research regarding the world economic system as well as collects information on the health of national economies. Such information services help lower the transaction costs related to financing arrangements and makes lending through the IMF more appealing to both lenders and borrowers.