First Quiz ‘’As has so often been the case in political science, the emergence of a new subject area [International Political Economy] was a reponse both to real world changes and to trends in theorizing within and outside the discipline.’’ (Ravenhill,2011,19) Discuss Duration : 40 Minutes

Week 5 Cooperation and Conflict in the Global Political Economy

Lecture Plan Globalization & the Need for International Cooperation Game Theoretic Approach – The Prisoners’ Dilemma – The Stag Hunt – Battle of the Sexes Solutions for Cooperation The Formation of Institutions Institutional Design

Globalization Global interdependence, or mutual dependence, arises when there are costly effects or high benefits to interaction among states With increasing interdependence, questions of collaboration and coordination become increasingly important

Cooperation vs. Collaboration vs. Coordination (J.L.Stoner,2013 ) Collaboration: Working together to create something new in support of a shared vision. The key points are that is is not an individual effort, something new is created, and that the glue is the shared vision. Coordination: Sharing information and resources so that each party can accomplish their part in support of a mutual objective. It is about teamwork in implementation. Not creating something new. Cooperation: Individuals exchange relevant information and resources in support of each other’s goals, rather than a shared goal. Something new may be achieved as a result, but it arises from the individual, not from a collective team effort.

The Need for Intl Cooperation (1) There are economic benefits to the integration of world markets but the domestic cost of adjustment can be an obstacle or opposition to global integration – Challenges of Free Riding Overcoming Uncertainty/Fear Bargaining over Distribution of Gains (relative vs.absolute gains)

The Need for Intl Cooperation (2) Governments may be tempted to free ride, or adopt protectionist policies, depending on – Domestic protectionist lobby pressures – Flexibility of economy to adjust (i.e.labour market) Governments may experience “inhibiting fear” – economic liberalization may lead to economic instability and subsequently political instability

The Need for Intl Cooperation (3) Coordination is required to negotiate the distribution of gains and losses from international cooperation (the “where to meet” problem) The type of good (private vs public vs inclusive club) will also shape the challenges in cooperating

Game Theoretic Approach Useful analytical tool to examine interdependent decision-making Typical problems of international cooperation can be modeled by different “games” “Games” describe – Choices available to actors/players – Actors’ evaluations of potential outcomes – Information actors have when they make choices Many types of games are utilized (Prisoner Dilemma, Stag Hunt, Battle of Sexes, Mixed Situations)

‘Free Riding Temptation’ : The Prisoner’s Dilemma (1) – (Note:most preferred is 4 )

The Nash Equilibrium An outcome in which none of the players can improve his or her situation by changing their individual strategy. Only if both switch their strategy together, both players will secure a better outcome. (optimal situation) However, this collectively (Pareto) optimal situation is unstable because each actor can improve his or her own situation by individually shifting strategy.

Pareto-Optimal Outcomes where no actor can be better off without making others worse off. In Pareto-deficient situations, other outcomes could increase some actors’ welfare without decreasing that of others.

The Prisoner’s Dilemma (2) Key point: actors face a structure of interaction that prevents them from reaching a cooperative solution even though such a solution would be optimal for all actors IPE examples: – Reciprocal trade liberalization (particularly applies to large economies) – Collective management of resources (i.e.OPEC)

Stag Hunt

The Stag Hunt (1)

The Stag Hunt (2) Key point: actors share a single most-preferred outcome but have difficulty in reaching such an outcome due to the anticipation of possible mistake or unintentional move by other actors IPE example: – Financial globalization ( fear of potential policy mistake of an individual country that might cause global destabilization)

Battle of the Sexes (1)

Battle of the Sexes (2) Key point: there are two equilibrium outcomes that are Pareto-superior to other outcomes. Coordination is required in order to reach either outcome IPE example: – International coordination of macroeconomic policies (i.e. efforts of developing countries to choose mutually compatible macroeconomic policies) – Choice of international monetary system (the US & GB in 1940s; Eurozone; China-Russia alternative currency)

To be continued after the break

Cooperation may not arise or fail due to: – Actors’ incentives to cheat – Actors’ sensitivities to distribution issues – Lack of confidence in the other actor’s behaviour

Solutions for Cooperation (1) Repeated games/interactions may increase chances of individual actors cooperating – May be undermined by Low expected net value of cooperation High expected costs of defection by others Difficulty in gathering information

Solutions for Cooperation (2) Institution or regimes for cooperation – Consists of Principles and norms Rules and procedures – 3 major functions A channel for the enforcement of agreements (targets uncertainty problem) Help states craft and choose among different responses (targets distribution problem) Facilitates cooperative behaviour (targets assurance problem)

5 Approaches on Formation/Evolution of Institutions 1)Neo-realism 2)Neo-realist institutionalism 3)Neo-liberal institutionalism 4)Cognitivism 5)Radical Constructivism

The Formation of Institutions (1) Neo-realists ( Waltz, Mearsheimer) – Regimes and international institutions have no significant role in international relations – Collaboration only sustainable if states highly value future interactions, have symmetric resources and are highly interdependent

The Formation of Institutions (2) Neo-realist Institutionalists (Kindleberger, Gilpin,Krasner) – Institutions have distributional consequences – Institutions can help control actors’ behaviour – Role of hegemonic powers in the development of institutions – Overemphasize tensions arising from the differences in the distribution of benefits between actors – Downplay the possibility that actors might prioritize absolute over relative gains

The Formation of Institutions (3) Neo-liberal Institutionalists (J.Nye, Keohane) – Institutions can lower costs of choosing, organizing, negotiating and entering into an agreement – Actors create institutions because they are useful – Existing institutions may constrain future institutional developments

The Formation of Institutions (4) Cognitivists (E.Haas) – Emphasize the role of expert consensus and the interplay of experts and politicians – New knowledge and cognitive understandings may affect the calculation of interests Radical constructivists (A.Wendt) – Norms and values are dominant causal forces – Institutions can alter how actors conceive their basic interests and thus constrain their behaviour

Social act on the international stage: Each actor’s perception is an interpretation about others intention

Institutional Design (1) Institutions can be characterized by: – Membership – Stringency of rules – Scope – Extent of delegation of power from member states to institutional bodies – Centralization of tasks within the institution

Institutional Design (2) Variation of institutional design along these dimensions affected by: – Type of problems that institutions should address – Potential participants (the number of these actors, their relative power, their financial and “social” capital) – Information and knowledge available to actors – Outside or pre-existing institutional context

Ravenhill: Global Political Economy 4e