New Working Paper: The Invisible Fist

Download the paper here.

Let’s start with a quote from President Obama, circa September 2009:

Iran must comply with U.N. Security Council resolutions…we have offered Iran a clear path toward greater international integration if it lives up to its obligations…but the Iranian government must now demonstrate…its peaceful intentions or be held accountable to…international law.

We’ve been dealing with the Iranian nuclear “crisis” for a while now. As the quote indicates, President Obama’s method of diplomacy is to offer Iran concessions and hope these carrots convince Iran not to build. His opponents have called such a plan naive; after all, why wouldn’t Iran takes those concessions, say thanks, and then build a nuclear weapon anyway? (Of course, his opponents have also suggested that we threaten to invade Iran to convince Iran not to build, even though such a threat is not credible in the least.)

When I first heard this quote, I fell into the opposing group. We don’t have any models that explain this type of bargaining behavior. In crises, fully realized power drives concessions. Yet, here, unrealized power is causing concessions, and Obama hopes that those concessions in turn mean that the power remains unrealized. I set out to develop a model to show that this type of agreement can never withstand the test of time.

I was wrong. The Invisible Fist shows that such agreements can hold up, even if a rising state can freely renege on the offers. Specifically, declining states offer most of what rising states would receive if they ever built the weapons. This is sufficient to buy off the rising states; while the rising states could build and receive more concessions, those additional concessions do not cover the cost of building. Meanwhile, the declining states are happy to engage in such agreements, because they can extract this building cost out of the rising states.

In any case, I think both the model and the paper’s substantive applications are interesting, so it is worth a look. Let me know what you think.

P.S. Slides here. Paper presentation below: