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Bargaining theory and the Iran deal

- November 24, 2013

Associated Press
War is costly to all sides in a conflict. If states knew the outcome of a war, they would prefer to agree to that outcome via a bargain without ever fighting. As the Monkey Cage’s (and Stanford’s)  James Fearon has pointed out in a famous article, we must thus ask why states sometimes fail to reach such a bargain?
One answer is that leaders act irrationally or that the leaders of states are able to deflect the cost of wars on others while reaping the benefits for themselves. These are plausible answers. Yet, it may also be that all sides act rationally and yet fail to strike a bargain that all would prefer to going to war.  Below are some basic insights from theories about such bargaining failures as they apply to Iran.
First, while each party prefers a bargain to war, they still want the best possible deal for themselves. This gives each side an incentive to exaggerate its willingness and ability to fight. One side may insist that any deal short of fully dismantling enrichment facilities is sufficient reason to initiate military action. Iran insists that no deal is possible without allowing continued enrichment. It seems like there is no overlap in bargaining positions. Yet, everyone knows that there is an agreement that both would prefer to war. Indeed, the Iranian government probably prefers no enrichment to war, given that they would almost certainly lose a violent contest badly. But it may also believe that the U.S. would prefer a deal that allows some enrichment facilities over going to war. Such a deal would be better for Iran than simply conceding. Neither side has an incentive to reveal precisely how much it is truly willing to compromise and even if it did, the other side might not believe it.
A more hard line U.S. bargaining position might not help and could indeed be risky. There would still be lingering doubts in the minds of the Iranians about the U.S. willingness to use force given the high cost of the Iraq war and the U.S. public’s reluctance to enter another military contest. Indeed, strongly committing to a hard line might push the issue to the brink.
Second, even after striking a deal, both sides might have difficulties making a credible commitment not to renege. This is, in my mind, the more serious issue. As long as enrichment facilities are present, the Iranian government could restart the process at any time. Even if the current leadership is sincere in its desire to use the facilities for peaceful purposes, it cannot make a credible promise that future governments will maintain the same position.
The U.S. also has credible commitment issues. Revoking the most serious sanctions requires congressional action and Congress has signaled that it is only willing to do so if the deal is good enough. This is why the current temporary agreement only calls for the withdrawal of sanctions that can be achieved through executive orders. Involving Congress is one way in which the U.S. can make its insistence on dismantling more credible, although in reality there is a good bit of uncertainty about what type of deal Congress would be willing to accept when push comes to shove.
Another, and potentially more serious, commitment issue is that the U.S. cannot guarantee that Israel and Saudi Arabia will abide by an agreement. Israel might launch a preventive attack and Saudi Arabia might decide to develop its own nuclear weapons. The U.S. has influence over the foreign policies of both countries but not sufficiently to guarantee that these countries would abstain from these actions.
What is important is that these commitment problems are the most severe for the types of bargains that we are most certain both the U.S. and Iran would take: where Iran keeps some enrichment facilities but gives up enriching uranium beyond 5 percent (with the dark horse being the heavy water reactor that can be used to produce plutonium, an alternative route to a nuclear weapon).
Time is a key factor in the bargaining process. Iran knows it would lose a violent contest unless it first develops a nuclear weapon that could deter an attack. The U.S. wants to avoid this. Sanctions make delaying agreement more expensive for Iran. This may also give it incentives to speed up enrichment.
The parties are now essentially negotiating over the acceptable time lag between a renewed Iranian decision to develop a nuclear weapon and their ability to acquire it. The U.S. may be able to accept a deal as long as it believes that the time between an Iranian decision to renege and the actual development of a weapon is sufficiently long for the U.S. to take action. This depends on a variety of factors such as the ability to detect defections (through monitoring) and a reduction in the capacity to enrich uranium quickly. Any such deal would be risky in that it depends on a number of factors we cannot foresee perfectly. This is why the details of any final agreement will be very important and difficult to negotiate.