Policy making in international cooperation, a repeated game theory approach and it application to OPEC

Document Type : Research Article

Authors

1 Associate Professor of Economics Tehran University

2 PhD student, Allameh Tabataba’i University

Abstract

In this paper, I clarify problems of international cooperation typically involve first a bargaining problem (akin to various coordinatin games) and next an enforcement problem (akin to prisoners' dilemma game). To specify and explore this conception analytically, I develop a game- theoretic model that depicts problems of international cooperation as having two linked phases. In the first phase, states bargain over the particular deal to be implemented in the second, "enforcement phase" of the game, which is modeled as a repeated Prisoners' Dilemma. According to the consequences of this model, a longer shadow of the future makes cooperation sustainable and so more likely, the analysis here suggests that though a long shadow of the future may make enforcing an international agreement easier, it can also give states an incentive to bargain harder, delaying agreement in hopes of getting a better deal. I apply this model to the Organization of Petroleum Exporting Countries (OPEC) to illustrate poor states with low reserves per capita (present-oriented states) receive better oil production offers than rich states with high reserves per capita (future-oriented states) in order to sustain cooperation.

Keywords

References

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