Week 10 Summaries
Kenneth A. Oye, ed., Cooperation Under Anarchy, Princeton University
Press, 1986.
Kenneth A. Oye, "Explaining Cooperation Under Anarchy: Hypotheses
and Strategies"
Oye’s theme is why, given the anarchic condition between states, cooperation
emerges in some cases and not others. He asks two main questions:
“What circumstances favor the emergence of cooperation under anarchy?” and
“what strategies can states adopt to foster the emergence of cooperation
by altering the circumstances they confront?” (1-2). His answers are
an early attempt to link insights from game theory and macroeconomics, security
studies and international political economy. He discusses three “circumstantial
dimensions” that “serve both as proximate explanations of cooperation and
as targets of longer-term strategies to promote cooperation”: payoff structure,
shadow of the future (Axelrod’s term), and number of players.
First, Oye discusses how payoff structure affect prospects for cooperation
(“conscious policy coordination”) and how strategies to alter it can improve
these prospects. He stresses that this analysis applies only to the
class of games where cooperation is necessary to realize mutual interests,
and suggests that analyses of cooperation in IR should only use stag hung,
chicken, and PD as games of last resort after harmony and deadlock are
ruled out. Oye claims that the determinants of payoff structure are
often subject to “willful modification through unilateral, bilateral, and
multilateral strategies.” For example, a state can use troops as
hostages to diminish payoff from own defection or choose a procurement
strategy preferring defensive to offensive weapons. In longer-term
situations it can seek to alter other’s perceptions of interest (e.g. US
telling Soviets about MAD during SALT I; more generally the socialization
or internalization of new norms by states). (10-11)
Second, Oye describes how strategies to increase the ‘shadow of the future’,
as well as strategies to increase the capacity for recognition (distinguishing
between cooperation and defection) and control (flexibility and ability
to shift policy in a tit-for-tat strategy), can increase the prospect of
continuing interaction and the likelihood of cooperation in iterated games.
Reciprocity can be encouraged through enhancement of recognition capacities:
the explicit codification and clarification of norms, as well as surveillance
and verification mechanisms, serve to reduce ambiguity and increase transparency.
The shadow of the future can be lengthened and single-play situations turned
into iterated oes by decomposing interactions over time (e.g. breaking down
a huge trade deal into a long-term series of deliveries and payments) and
by linking issues (making cooperation on one issue contingent on cooperation
in a separate, future issue).
Finally, Oye discusses how cooperation becomes more difficult in N-person
games, thanks to increasing complexity, rising transaction and information
costs, the failure of conditional cooperation and the possibility of free-riding,
etc. Some of these problems can be alleviated through conventions
(to diminish transaction and information costs), regime creation, collective
enforcement mechanisms, and so on. Alternatively, another way to promote
cooperation is to reduce the number of actors necessary to realize common
interests. Bilateral and regional decomposition through discriminatory
strategies can do this, albeit at the cost of lowered gains from cooperation
and the risk of causing negative externalities.
George W. Downs, David M. Rocke, and Randolph M. Siverson, "Arms
Races and Cooperation."
Downs, Rocke, and Siverson (DRS) discuss the conditions that determine
when unilateral action, tacit bargaining, and negotiation are likely to
reduce intensity of arms races. They approach this question through
a formal analysis of arms races, informed by a historical analysis of nineteenth
and twentieth-century arms races that ended up peacefully. They conclude
that most of the arms races that ended in cooperation “have done so not
because one side adopted a particular cooperative strategy, but because
the basic character of the race was altered by events that were not directly
connected with it. Such events, which collectively might be called
the ‘tilt of the board,’ spring largely from economic circumstances and changes
in the larger political order…” (119).
DRS define arms race as continual mutual defection (DD). In this
setting, assuming perfect information and rational actors, it must be true
that DD > CD and not both (CC > DC and CC > DD). These condition
produce nine orderings, listed on p. 121. Of these, four are related
to Deadlock (i.e., one’s two most preferred outcomes require one to defect).
DRS claim that these preferences and situations are not as pathological
as others have assumed, and can explain the Anglo-German naval race before
WW1, and the preferences of the Germans in the 30s and Soviets in the 50s.
In such conditions, unilateral strategies (eg defensive rather than offensive
weapons) may seem irrelevant, but DRS claim that states can “nonetheless
chose [them] from other motives with similar effect.” (125). They
concede is thoroughly irrelevant, but conclude negotiation might work even
if both prefer defection, if issue-linking can alter the payoff structure.
In a PD as opposed to Deadlock: unilateral strategies must deal with whether
the assumption that security rather than influence is the adversary’s primary
motive, and whether defensive weapons are a viable option. Tacit
bargaining can work in the form of Axelrod’s tit-for-tat strategy, assuming
the prospect of iteration. Once again, negotiation works through
issue-linkage, and DRS point to 3 historical cases where this de-escalated
arms races: the Washington Naval Treaty, SALT I, and SALT II.
In the second half of their article DRS discuss information and control
problems and how they “expand the range of games that can lead to arms races”
(133). Strategic misrepresentation is when one side tries to extract
concessions in a bargaining situation by pretending to have preferences it
does not hold. However such a bluff can be called, and in order to
maintain credibility, the preference must be followed (e.g. a weapons system
must actually be built, such as MX missiles or ABMs). Imperfect intelligence
(e.g. British overestimates of French shipbuilding in the 1850s) or worst-case
analysis can create the impression of defection to the opponent (CD) even
though it hasn’t happened. This yields further games that could lead
to arms races, including the stag hunt (135). Problems of interpretation
(the result of experience or ideology) can have the same effect as poor
information. Control problems can cause arms races to continue if
decision makers cannot cooperate (or more subtly, signal their desire to
cooperate but cannot actually do so) or defect to punish defection, because
their governments resist change. DRS claim that the ability of bureaucracies
to kill policy changes through leaks to the press explains why leaders use
summits and personal envoys to move through important stages of negotiations.
Unilateral strategies are vulnerable to pressures of uncertainty, especially
given the subjective variance among interpretations of what constitutes
a defensive rather than offensive weapons system (e.g. fortifications in
France and Germany, aircraft carriers in the pacific, alliances).
Finally, information and control problems diminish the effectiveness of
Tit-for-Tat, though it remains superior to other strategies, especially
when modified so as to retaliate less frequently in order to account for
possible misinformation and lack of control.
John Conybeare, "Trade Wars: A Comparative Study of the Anglo-Hanse,
Frnaco-Italian, and Hawley-Smoots Conflicts."
Conybeare compares three cases of trade wars (Anglo-Hanse trade wars
of C14-17, Franco-Italian tariff wars in the 1880-90s, and the tariff wars
that followed from the Hawley-Smoot act of 1929), which he defines as attempts
to achieve “economic objectives directly related to the traded-goods sector
of the economy” by means of “restrictions on the flow of goods and services”
(147). Conybeare analyzes what promotes or inhibits cooperation in
these three wars along the three dimensions discussed by Oye: payoff structure,
iteration, and number of actors.
Payoff structure in trade wars is a function of four factors: (1) “relative
size, trade dependence, or stages in a business cycle”; (2) “the dynamics
of bargaining, including transaction costs, side payments, linkage to other
issues, coalitions, and diplomatic skill”; (3) domestic structure, especially
the role of rent-seeking interest groups; and (4) cognitive factors (ideology,
misperception, risk, and time preferences) (149-50).
In his study of the Franco-Italian and other late C19 trade wars, Conybeare
examines how asymmetry in payoff structure can affect cooperation.
When Italy, a small developing economy, initiated a trade war with France,
a large and major trading partner, it didn’t calculate the asymmetry in
the costs for mutual defection. Moreover the French could continue
to raise the cost of defection for Italy, possibly to the extent that it
would turn the game into Chicken for Italy while remaining in a PD itself
(Conybeare calls this “Called Bluff”). Eventually the costs of DD
for Italy were so high that it accepted major concessions to return to a
higher level of cooperation – which was still less than the original state
of CC.
Iteration obviously is central to trade wars; the question is why an
extended ‘shadow of the future’ does not produce or sustain cooperation.
Conybeare points to escalating patterns of uncooperative interaction developed
over time, changing perceptions over time, and the isolation of trade issues
by institutional structures (e.g. GATT, which was created to arbitrate
trade disputes, ends up constraining the ability to retaliate in the future).
The related case is the Anglo-Hanse wars, which Conybeare describes as
a prisoner’s dilemma. He explains that the two sides failed to sustain
cooperation over several centuries of iterated conflict thanks to very high
transaction costs, the influence of rent seeking interest groups on negotiations,
and a sustained economic recession in England which raised the current marginal
value of defection in the form of predatory income transfers, and lowered
the shadow of the future.
Finally the free-rider problem enters trade wars in the form of the MFN
treaty clause, which creates a public good by specifying that states cannot
grant a concession to one state without granting it to all states.
Conybeare takes this large-number public-good problem to be the crux of the
Hawley-Smoot wars. While the public-good problem had existed earlier,
after World War 1 there were many more countries involved, as well as further
complications like war industries and reparations. The Hawley-Smoot
act raised American tariffs while the US still sought MFN privileges from
trading partners. As a result others retaliated by attempting to remove
the public good of MFN privileges via country quotas, cartel arrangements,
and other preferential mechanisms. Without such exclusionary devices,
or else a coercive regime such as GATT, Conybeare concludes, there is no shadow
of the future.
Robert Axelrod and Robert O. Keohane, "Achieving Cooperation Under
Anarchy: Strategies and Institutions."
Axelrod and Keohane (AK) begin by comparing the analyses of IPE and security
studies in the above case studies along the three dimensions of mutuality
of interest, shadow of future, and number of players. They emphasize
the importance of actors’ shifting perceptions and interpretations of interests
in the determination of payoff structure, and in changes to that structure
(e.g. from PD to Deadlock). Their key point (231) is that IPE and
security cooperation can be analyzed with the same framework. However,
AK concede, this claim seems less true when it comes to the ‘shadow of the
future’: IPE generally seems to exhibit more iteration and thus offers a
better chance of successful retaliation for defection and more potential
for cooperation, while military interactions may include the possibility
of pre-emptive war and the ability to change the nature of the game at a
single stroke. Sanctioning problems occur in both the security and
IPE contexts and are best explained by “the conditions that determine whether
defection can be prevented through decentralized retaliation: the ease of
identifying sources of action, the ability of governments to focus retaliation
or reward on particular targets, and the incentives that exist for members
of a group to punish defectors” (236).
AK conclude by arguing that a focus on the broader contexts of international
interactions –namely issue linkages, multi-level games, reciprocity in
complex situations, and the role of international institutions – is crucial
to understand how actors can adopt strategies to alter payoff structures,
lengthen the shadow of the future, and break down N-player games, all of
which can promote cooperation (as distinct from harmony of interests) under
conditions of anarchy.
James D. Fearon, “Bargaining, Enforcement, and
International Cooperation,” International Organization
52:2 (Spring 1998), pp. 269-306.
Fearon argues against scholars in both the neo-realist and neo-liberal camps
who use various 2x2 representations to characterize the strategic setting
in international relations. Such scholars distinguish various international
contexts into categories such as P.D., Stag Hunt, Chicken, etc. Much
of the debate between neo-realist and neo-liberals has occurred, for example,
over issues such as whether cooperation can be sustained under a P.D. or how
Battle of Sexes-type situations might create conditions unfavorable for cooperation.
Fearon proposes that it is more accurate and theoretically fruitful to see
most international cooperation as occurring under a common strategic structure.
This structure has two stages:
1. Bargaining – A Coordination Game
/ War of Attrition over the terms and form of a cooperative agreement.
This type of game cannot easily be represented in 2x2 form and is better characterized
as an n-round interaction with discounting. Both countries incur costs
if no agreement is reached, and whichever state “caves in” first tends to
get a worse deal.
2. Enforcement – A repeated P.D. in
which {C,C} represents the bargaining outcome agreed to in Stage 1.
Several interesting implications arise from this analysis:
1. A state’s relative power in a given
situation is their willingness to hold out during the bargaining phase.
This contrasts to traditional measures such as state size and capability.
2. States will only seriously bargain
over issues in which enforcement is reasonably feasible. Therefore scholars
studying cooperation will face selection bias if they only look at cases
where such negotiation takes place.
3. Contrary to common neo-liberal
claims, an extended shadow of the future can be inimical for cooperation.
Neo-liberals often assert that a long shadow of the future is good for cooperation
since it dissuades players from pursuing single-shot defection in a repeated
P.D. However, in Fearon’s two-stage model, this benefit only arises
in Stage 2. In Stage 1, states might actually choose to hold out longer
during the bargaining process if they have a long time horizon. This
can lead to fewer international agreements being struck to begin with.
Hence, agreements with big consequences or a long duration will tend to be
struck only after protracted negotiation if at all.
Charles P. Kindleberger, The World in Depression, 1929-1939.
Berkeley: University of California Press, 1973. pp. 288-305.
Ch. 14: An Explanation of the 1929 Depression
Kindleberger tries to answer the cause for the widespread,
long-lasted depression of 1929. His explanation is that the international
economic system became unstable by British inability and U.S. unwillingness
to assume responsibility for stabilization by neglecting five functions:
maintenance of open market for trade, provision of stable long-term lending,
policing of stable exchange rate system, ensuring macroeconomic policy
coordination, and acting as a lender of last resort (providing liquidity
in financial crisis). The author argues that these functions should be
organized and executed by a single country that assumes responsibility for
the system. The difficulty of stabilization lay in considerable latent instability
in the system and the absence of a stabilizer (seriousness of the economic
shock to the system does not matter much).
The author compares British cooperative measures
with the U.S. policies prior to the world depression, emphasizing the difference
between the U.S. and U.K policies. Britain maintained free trade policy
by opening their market (while the U.S. passed the Smoo-Hawley Tariff Act
in 1930 which strengthened import restrictions), lend abroad on a countercyclical
basis (lend to foreign nations when domestic economy is in recession,
and draw foreign investment when domestic economy is in a boom), adhered
to fixed exchange rate based on gold standard, and served as the lender
of last resort. By 1931, however, it became clear the Britain could not
exercise such leadership in international economy because its capacity
for leadership had gone. But the U.S. declined its leader role offered
by European states after the World War I from domestic interest.
Kindleberger suggests three stable and three unstable
scenarios on the leadership of the world economy. The stable three are:
1) continued U.S. leadership 2) new responsible leadership role by Europe,
Japan, or some other country 3) effective cession of economic sovereignty
to international institutions. The last is the most attractive but least
likely. The unstable three are: 1) contention for leadership between major
economies 2) one unable to lead and the others unwilling as was in 1929
to 1933 3) each [actors] retaining a veto over programs of stability or strengthening
of the system without seeking to secure positive programs of its own.
David Lake, "Leadership, Hegemony, and the International Economy: Naked
Emperor or Tattered Monarch with Potential?" International Studies Quarterly
37:4 (December 1993), pp. 459-489.
Hegemonic stability theory is the exploration of connections between
hegemony and economic liberalization, and between hegemony and peace. Lake's
article is on hegemony theory as it relates to economic liberalization only
and is primarily a review article.
Hegemonic stability theory was first noted regarding the British Empire
and the rise of free trade by E.H. Carr (1939). Gilpin (1971) revived the
subject in the language of modern political science, and ensuing discussion
of Kindleberger (1973) and others ended in the mid-1980s. After a short
pause in the discussion of hegemonic stability theory, Lake attempts to
bring hegemonic stability theory from the "museum" of graduate student syllabi
back onto the active research program of political science research, regardless
of the "catcalls" of his peers that he received when proposing the revival
at a conference. Lake says that a productive direction for leadership theory
is to identify the necessary and sufficient conditions of international
economic infrastructure, and explicating when leadership is likely to be
benevolent or coercive.
Lake criticizes the field for theoretical sloppiness and divides the
theory into "Leadership Theory", which "builds upon public goods models
and seeks to explain the production of economic infrastructure" and "Hegemony
Theory". which "focuses on the different structurally-derived trade policy
preferences of states and attempts to explain international economic openness"
(459).
Leadership theory, exemplified by Kindleberger (1973), holds that the
public good of economic infrastructure requires a hegemon to be provided.
Lake defines economic infrastructure as providing monetary liquidity
to avert freezes and panics, managing foreign exchange rates, and coordinating
domestic monetary policies because a stable international economy requires
a secure medium of exchange and stable store of value. In addition to international
monetary coordination, a hegemon provides protection for international property
rights. All of these functions are public goods. Critics outside the economic
mainstream argue that these attributes of monetary and property stability
are necessary for free trade, which is not a public good because free trade
is good for hegemons but not necessarily good for smaller powers.
In Lake's primary theoretical contribution (he departs for a page or
two from the review style), he argues that Kindleberger is wrong in thinking
that there necessarily needs to be only one stabilizer (one hegemon). At
times the public good cannot be provided with one state because of the high
costs of provision, but can be provided by more than one state (what Lake
defines as the "k-group") through Keohanian (1984) coordination. A single
leader is therefore not a "necessary condition" of the provision of the public
good of international monetary and property infrastructure.
Lake's "hegemony theory" assumes that states have different trade preferences
-- some prefer free trade, while others prefer protectionism. The
hegemon prefers economic openness, while other states are split between those
that prefer openness and those that prefer protectionist strategies, depending
on their mix of interest groups, discount rates, and the size of their economy.
Lake notes that hegemony theory goes against mainstream economics, in that
it assumes that economic liberalization is not good for all states.
Todd Sandler, “The Economic Theory of Alliances: A Survey,” Journal
of Conflict Resolution 37:3 (Sep., 1993), pp. 446-483.
Sandler discusses two models of alliances: the pure public good model and
the joint product model. In the pure public good model, because the
benefits of defense are nonrival and nonexcludable, defense is regarded
a public good. It is nonrival because a unit of defense can be consumed
by one ally without detracting from the consumption opportunities for other
allies. It is nonexcludable because the benefits of defense are available
to all, once it is provided. In this model, states seek to maximize
their utility functions subject to their own resource constraint (see Equation
5).
Due to the public nature of the good, the collective action problem arises.
First, as the number of allies increases, the extent of suboptimal provision
of the good is expected to worsen. Secondly, the large, wealthy allies
shoulder the defense burdens of the smaller allies. And thirdly, the
impact of endowment asymmetry among potential members on the collective
action is important. Unequal endowments are conducive to collective
action, since it is then more likely that at least one potential participant
will get sufficient benefits as to assume the entire cost of providing the
good.
The joint product model differs from the public good model in “allowing
the defense activitiy to produce a variety of outputs that may be purely public,
purely private, and impurely public.” (459) In this model, defense
burden sharing is more apt to be associated with benefits received when private
benefits are a significant proportion of defense benefits received by allies.
Factors such as strategic doctrine and military technology can determine
the mix of public and private outputs derived from military activities.
The upshot of this model is that nations would want to consume more of the
complementary good, and this is only possible if they increase their own
defense activities. Hence an increase in spillins no longer decreases
the nation’s defense activities, provided that complementarity of joint products
is sufficiently strong.
Sandler then introduces a number of theoretical extensions such as cost
differences among allies, the endogeneity of threat, the variation of the
underlying game structure, and the use of different technologies of public
supply. Lastly, the author tests the theory, and draws a number of conclusions:
• The joint product model tends to
outperform the pure good model
• Allies tend to respond positively
to spillins, thus supporting the notion of complementarity between defense
joint products.
• Defense demands did not always respond
positively to threat.
• Military doctrine can affect the
demand for defense.
Andrew Moravcsik, “Negotiating the Single European
Act: National Interests and Conventional Statecraft
in the European Community,” International Organization
45:1 (Winter 1991), pp. 19-56.
The Single European Act links liberalization of the European market with
procedural reform. The first half of this reform package aims to create “an
area without internal frontiers in which the free movement of goods, persons,
services and capital is ensured”. The second half consists of procedural
reforms designed to streamline decision making in the governing body of the
(then) EC, the Council of Ministers. The author seeks to explain the timing
and content of the reform package, and presents two explanations. The first
(which he rejects) stresses the independent activism of international or transnational
actors and the second emphasizes bargaining between the leaders of the powerful
states.
According to the “supranational institutionalism” account, the reform
was guided by actors and institutions acting “above” the nation-state. The
European Parliament advocated European federalism and a broad expansion
in the scope of EC activities. Business interest groups, at times working
together with EC officials, hoped to bolster the competitiveness of European
firms by calling for a more liberal EC market. The Commission, under the
leadership of Delors, also pushed toward the construction of a single European
market. The core of the supranationalist explanation is thus an elite alliance
between transnationally organized big business groups and EC officials,
led by Delors.
The alternative approach, intergovernmental institutionalism,
includes the following principles:
1. Intergovernmentalism - The EC is based on interstate
bargains between its leading member states. Heads of government with a small
group of ministers and advisers initiate and negotiate the major initiatives.
2. Lowest-common-denominator bargaining – The bargains
struck in the EC reflect the relative power positions of the member states.
Larger states hold a de facto veto power over fundamental changes in the
scope or rules of economic liberalization. Thus bargaining tends to converge
toward the lowest common denominator of large state interests.
3. Protection of sovereignty - Policymakers safeguard
their countries against the future erosion of sovereignty by demanding the
unanimous consent of regime members to sovereignty-related reforms. They
also avoid granting open-ended authority to central institutions that might
infringe on their sovereignty and prefer to work through intergovernmental
institutions such as the Council of Ministers.
According to the intergovernmental approach, an analysis of the 1992 initiative
must begin by examining the underlying preferences of Germany, France and
Britain. France supported strengthening monetary coordination and political
and defense cooperation, but was opposed by Britain and German in both cases.
All three were inclined towards procedural reform in the EC decision making
institutions and liberalization of the internal market.
After reviewing the history of the 1992 initiative the author concludes
that the historical record does not confirm the importance of international
and transnational actors. Representatives of the Parliament were excluded
from decisive forums. The Parliament actually passed in the end a resolution
protesting that the SEA “in no way represent[s] the real reform of the Community
that our peoples need”. Most transnational business lobbies got involved
late. While logistical support from the Commission may indeed have hastened
a final agreement, there is little evidence that it altered its substance.
The evidence, however, points to the importance of the three elements of
intergovernmental institutionalism. Heads of government and their representatives
carried out the negotiations. The result represents the convergence of domestic
policy preferences in the largest member states. The steady narrowing of
the institutional reform to a “minimalist” position in which majority voting
is restricted to internal market policy, the power of Parliament is limited,
and the future spillover to areas such as monetary policy is blocked confirms
the enduring preoccupation of all three major states with maintaining sovereignty
and control over future changed in the scope of EC activities.
Another question that should be asked is why did underlying national policy
preferences converge at this point in time. Part of the answer can be found
in the domestic politics of France, Germany and Britain. The author suggests
four explanations, none of which is entirely satisfactory.
1. The convergence of policy preferences reflected the views, either European
or neoliberal, of the three major European leaders of the time – Mitterand,
Kohl and Thatcher.
2. Domestic bureaucracies internalized norms of cooperation and changed
the views of heads of government.
3. Over the years, centrist parties, particularly those of the center-right
have tended to support EC reforms, while the strongest opposition to further
integration has been located on the extremes of the ideological spectrum.
In the mid-1980s, the dominance of centrists in ruling coalitions created
a rare opening for reform.
4. In the 1970s and early 1980s the three states faced economic difficulties.
The convergence of policy preferences may have resulted from the failure
of purely national strategies of economic policy, which created or legitimated
pressure for coordinated liberalization at the European level.
James Alt and Michael Gilligan, “The Political
Economy of Trading States: Factor Specificity,
Collective Action Problems and Domestic Political
Institutions,” Journal of Political Philosophy
2:2 (1994), pp. 165-192.
The authors proceed in three steps. 1) Given the stakes in trade
issues, which groups will overcome collective action problem and form coalitions?
2) What are the stakes in trade issues? These are determined by factor endowment
and factor mobility. 3) What is the effect of domestic political institutions
on the composition and strength of the coalitions.
I. Collective Action
Pareto observed that “a protectionist measure provides large benefits to
a small number of people, and causes a very great number of consumers a slight
loss. This circumstance makes it easier to put a protectionist measure in
practice” (168). Why is this so?
Collective political
action is a public good, and, therefore, its provision has the problem of
excludability. People will only contribute to the point where their
marginal benefit from the good equals the marginal cost to them – in other
words, they don’t internalize the benefits derived by the whole group from
their individual contributions. This leads to a sub-optimal provision
of the public good. Since each member of the group can consume contributions
of others, each person receives less benefit from their own contribution
than it cost to make that contribution, and so they consume less of the good
than would be the case if the good were excludable.
The relationship
between the size of the group and the amount of public good provided is ambiguous.
Though members of larger groups contribute smaller individual amounts, the
total amount provided increases with numbers. Within groups, those
who have larger stakes in the issue will provide a disproportionately larger
share of the good (e.g. lobbying).
How then
do we explain Pareto’s observation? The are two reasons for why this
happens: 1) there may be per person transaction costs in organizing groups.
Then it would cost more to organize large groups; 2) “if policy outcomes
are probabilistic, members of large groups with small per person stakes and
contributions may suppose that their own contributions will be insignificant
to the political outcome and therefore not make them” (170).
II. Preference formation and coalitions based on preferences.
A. Hecksher-Ohlin (HO) Stolper-Samuelson (SS)
– Mobile factors
The SS theorem states
that an increase in a price of a product (e.g. caused by protection) will
cause an unambiguous increase of real incomes of owners of factors (e.g.
land, labor, capital) used intensively in the production of that good.
Because factors are assumed to be mobile across sectors, owners of the same
factor will experience the same changes to their returns, regardless of which
industry they were in.
HO theorem states
that a country will export goods that use relatively abundant factors of
production and import goods that use relatively scarce factors. Combining
the two theorems, we see that free trade will increase the returns to the
abundant factors and decrease the returns to the scarce factors. Thus,
the conflict is between the factors, with abundant factors favoring free
trade and scarce factors favoring protection (Rogowski’s arguments).
B. Ricardo-Viner (RV) – Specific factors
Specificity corresponds
to the loss of value in moving an asset from its current to its next best
use. Highly specialized and differentiated economies, high transaction
costs, ethnic rivalries, centrally planned economies, and other barriers
to entry/exit to/from industries increase specificity.
RV assumes that
some factors are specific, and one (e.g. labor) is mobile. Let’s say
that freer trade decreased the price of import-competing good. Labor
will flow out of import-competing and into exporting industries. But
the specific factors remain in the import competing industry and suffer a
productivity decline because of labor outflow. The income of that specific
factor will fall with respect to both the imported and the exported goods.
Similarly, the income of factors specific to the exporting industry will
unambiguously rise.
The effect on the
mobile factor is ambiguous. First, it depends on the intensity of use.
If labor is used more intensively in the exporting industry, its income will
increase; if it’s used more intensively in the import-competing industry,
its income will decrease. Second, it depends on the consumption patens.
If labor heavily consumes the imported good, whose price went down, its real
income is likely to increase; if it heavily consumes the exported good, its
income is likely to decrease. The tradeoffs are illustrated in Figure
1 (177). Thus, in a specific factor model, the conflict will be between
the exporting and import-competing sectors, with exporting sectors favoring
free trade and import-competers favoring protection.
If the mobile factor
is used intensively in the exporting sector and heavily consumes the imported
good, it will join the free-trade coalition. On the other hand, if
the mobile factor is used intensively in the import-competing sector and
heavily consumes the exported good, it will join the protectionist coalition.
When the combination of intensity of use and consumption patterns is such
that the effect on the mobile factor is ambiguous, the specific factors will
offer side-payments to the mobile factor to induce its support.
III. Coalitions: Factor Mobility, Institutions, and Collective
Action
High factor mobility means
that benefits of trade policy will be highly dispersed across sectors, which
produces non-excludability and raises collective action costs. Converse
is true for when factors are specific.
Majoritarian institutions
make necessary formation of large interest groups that can better affect
policy outcome. SS thm is more consistent here. Conversely, when
decision makers are insulated, access to the decision-maker becomes critical,
and support of large groups unnecessary. RV thm is more consistent
here.
Thus, “[o]ther things
being equal, Majoritarian political systems and factor mobility will both
mean that benefits will be more dispersed and, therefore that it will be
harder to organize a successful interest group” (183).
The possible coalition
patterns based on costs of collective action and factor specificity are represented
in Figure 3 (184). SS-HO/Rogowski’s theories of broad, factor-based
coalitions, work only when factors are mobile and collective action cost
are low. Raise the collective action costs, and no coalitions will
form, since free-riding will be rampant. Make factors specific while
keeping collective action cost low, and many interest groups will form, including
consumers who are inherently pro-free-trade. Then coalition of import-competing
industries will have to form to counter consumers and exporters. Such
coalition would be unstable, since it will produce policies of protection
for all import-competing industries, and with that level of protection, everyone
would be better off under free trade.
When factors are
specific and collective action costs are high, individual industries will
request and often receive protection and trade policy will be dominated by
special interest, as described by Pareto and Olson and consistent with RV
thm.
By adding
institutions (as described above) to the mix of dimensions affecting trade
policy coalitions, we get a wide array of possible outcomes, with SS and
RV models as only two (out of 8). Figure 4 (186).
In their conclusion,
the authors note that it is sometimes stated that since factors are mobile
in the long run, the SS/Rogowski model applies in the long run, even though
RV applies in the short run. This is not necessarily true, since owners
of specific factors may undertake many actions to increase the specificity
of their assets in order to keep their returns from protection high in the
future. Thus, RV-Frieden could apply in the long run, as well as in
the short run.