Understanding the Iran Deal: A Model of Nuclear Reversal

Most of the discussion surrounding the Joint Comprehensive Plan of Action (JCPOA, or the “Iran Deal”) has focused on mechanisms that monitor Iranian compliance. How can we be sure Iran is using this facility for scientific research? When can weapons inspectors show up? Who gets to take the soil samples? These kinds of questions seem to be the focus.

Fewer people have noted Iran’s nuclear divestment built into the deal. Yet Iran is doing a lot here. To wit, here are some of the features of the JCPOA:

  • At the Arak facility, the reactor under construction will be filled with concrete, and the redesigned reactor will not be suitable for weapons-grade plutonium. Excess heavy water supplies will be shipped out of the country. Existing centrifuges will be removed and stored under round-the-clock IAEA supervision at Natanz.
  • The Fordow Fuel Enrichment Plant will be converted to a nuclear, physics, and technology center. Many of its centrifuges will be removed and sent to Natanz under IAEA supervision. Existing cascades will be modified to produce stable isotopes instead of uranium hexafluoride. The associated pipework for the enrichment will also be sent Natanz.
  • All enriched uranium hexafluoride in excess of 300 kilograms will be downblended to 3.67% or sold on the international market.

Though such features are fairly common in arms agreements, they are nevertheless puzzling. None of this makes proliferation impossible, so the terms cannot be for that purpose. But they clearly make proliferating more expensive, which seems like a bad move for Iran if it truly wants to build a weapon. On the other hand, if Iran only wants to use the proliferation threat to coerce concessions out of the United States, this still seems like a bad move. After all, in bargaining, the deals you receive are commensurate with your outside options; make your outside options worse, and the amount of stuff you get goes down as well.

The JCPOA, perhaps the worst formatted treaty ever.

The JCPOA, perhaps the most poorly formatted treaty ever.

What gives? In a new working paper, I argue that undergoing such a reversal works to the benefit of potential proliferators. Indeed, potential proliferators can extract the entire surplus by divesting in this manner.

In short, the logic is as follows. Opponents (like the United States versus Iran) can deal with the proliferation problem in one of two ways. First, they can give “carrots” by striking a deal with the nuclearizing state. These types of deals provide enough benefits to potential proliferators that building weapons is no longer profitable. Consequently, and perhaps surprisingly, they are credible even in the absence of effective monitoring institutions.

Second, opponents can leverage the “stick” in the form of preventive war. The monitoring problem makes this difficult, though. Sometimes following through on the preventive war threat shuts down a real project. Sometimes preventive war just a bluff. Sometimes opponents end up fighting a target that was not even investing in proliferation. Sometimes the potential proliferator can successfully and secretly obtain a nuclear weapon. No matter what, though, this is a mess of inefficiency, both from the cost of war and the cost of proliferation.

Naturally, the opponent chooses the option that is cheaper for it. So if the cost of preventive war is sufficiently low, it goes in that direction. In contrast, if the price of concessions is relatively lower, carrots are preferable.

Note that one determinant of the opponent’s choice is the cost of proliferating. When building weapons is cheap, the concessions necessary to convince the potential proliferator not to build are very high. But if proliferation is very expensive, then making the deal looks very attractive to the opponent.

This is where nuclear reversals like those built into the JCPOA come into play. Think about the exact proliferation cost that flips the opponent’s preference from sticks to carrots. Below that line, the inefficiency weighs down everyone’s payoff. Right above that line, efficiency reigns supreme. But the opponent is right at indifference at this point. Thus, the entire surplus shifts to the potential proliferator!

The following payoff graph drives home this point. A is the potential proliferator; B is the opponent; k* is the exact value that flips the opponent from the stick strategy to the carrot strategy:

Making proliferation more difficult can work in your favor.

Making proliferation more difficult can work in your favor.

If you are below k*, the opponent opts for the preventive war threat, weighing down everyone’s payoff. But jump above k*, and suddenly the opponent wants to make a deal. Note that everyone’s payoff is greater under these circumstances because there is no deadweight loss built into the system.

Thus, imagine that you are a potential proliferator living in a world below k*. If you do nothing, your opponent is going to credibly threaten preventive war against you. However, if you increase the cost of proliferating—say, by agreeing to measures like those in the JCPOA—suddenly you make out like a bandit. As such, you obviously divest your program.

What does this say about Iran? Well, it indicates that a lot of the policy discussion is misplaced for a few of reasons:

  1. These sorts of agreements work even in the absence of effective monitoring institutions. So while monitoring might be nice, it is definitely not necessary to avoid a nuclear Iran. (The paper clarifies exactly why this works, which could be the subject of its own blog post.)
  2. Iranian refusal to agree to further restrictions is not proof positive of some secret plan to proliferate. Looking back at the graph, note that while some reversal works to Iran’s benefit, anything past k* decreases its payoff. As such, by standing firm, Iran may be playing a delicate balancing game to get exactly to k* and no further.
  3. These deals primarily benefit potential proliferators. This might come as a surprise. After all, potential proliferators do not have nuclear weapons at the start of the interaction, have to pay costs to acquire those weapons, and can have their efforts erased if the opponent decides to initiate a preventive war. Yet the potential proliferators can extract all of the surplus from a deal if they are careful.
  4. In light of (3), it is not surprising that a majority of Americans believe that Iran got the better end of the deal. But that’s not inherently because Washington bungled the negotiations. Rather, despite all the military power the United States has, these types of interactions inherently deal us a losing hand.

The paper works through the logic of the above argument and discusses the empirical implications in greater depth. Please take a look at it; I’d love to hear you comments.

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