Rewarding Impatience: A Bargaining and Enforcement Model of OPEC
In this paper, Blaydes make two primary contributions to the literature on international cooperation. First, she presents a simple version of Fearon's bargaining and enforcement model (1998) and show that impatience (as captured in the discount factor) can be a source of bargaining strength when the outcome of the bargaining phase is followed by an enforce- ment phase that resembles a prisoners' dilemma. Second, Blaydes illustrate how to apply this model to the question of the division of cartel profits within the Organization of Petroleum Exporting Countries (OPEC), particularly with regard to the relationship between bargaining strength and disparate time horizons. I find that for some critical threshold level, states that discount the future more heavily tend to receive better oil production offers than those that do not. I examine empirical evidence that suggests that countries in OPEC fall into the range where this proposition holds; in other words, relatively poor, populous countries and relatively unstable ones are allowed by OPEC to overproduce.
Published: Thursday, October 14, 2004
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