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How uncertainty about outside options impedes international cooperation

Published online by Cambridge University Press:  15 March 2012

Johannes Urpelainen
Johannes Urpelainen*
Affiliation:
Assistant Professor, Department of Political Science, Columbia University, New York, NY, USA
*
E-mail: [email protected]
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Abstract

International cooperation often requires costly policy adjustments. States may worry, however, that such adjustments weaken their outside options, and thus reduce their bargaining power. How does uncertainty about the effects of policy adjustments on outside options influence the depth of cooperation that states can achieve? My game-theoretic analysis shows that uncertainty about outside options is an obstacle to deep cooperation. If states agree on deep cooperation, they have to compensate vulnerable states with weak outside options for their losses. Under uncertainty, states that are not vulnerable have an incentive to falsely claim that they are vulnerable (i) to avoid a side payment or (ii) to obtain compensation for being vulnerable. The result holds even if the added value of deep cooperation would be large enough to fully compensate the losers. In equilibrium, the more vulnerable state sometimes offers a side payment to the less vulnerable one. More broadly, the analysis reveals a new international cooperation problem and provides a new rationale for costly signaling mechanisms and delegation to international organizations.

Keywords

international cooperationbargainingincomplete informationcontract theorypower asymmetry
Type
Original Papers
Information
International Theory , Volume 4 , Issue 1 , 15 March 2012 , pp. 133 - 163
Copyright
Copyright © Cambridge University Press 2012

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