29 December 2009

Trust and Climate Change

Niranjan Rajadhyaksha has a good piece in the Mint on the reasons why Copenhagen failed to deliver, taking up a fitting example of the water crisis in Mumbai and how difficult it is to cooperate even within his housing society on ensuring rules, despite the following reasons why this should be easier than creating a global consensus.
It is easier to build this consensus in a small housing colony than on a global scale. Consider some possible reasons.
1. There is a high level of trust and even affection in a housing colony set up by a group of Marathi writers while international relations are cursed with deep divisions based on history, geography and culture. Getting the rich and poor countries to accept a common timetable to cut carbon emissions is a tough task.
2. The people who stay in our housing society are a homogeneous lot, coming from similar backgrounds and with similar incomes; climate change talks involved countries with different cost-benefit calculations. For example, the Maldives can do almost nothing to mitigate climate change but will surely be the first nation to bear the full brunt of its effects.
3. There is an incentive to protect your reputation in a housing colony or small community, since residents depend on each other for a variety of reasons. A nation at the bargaining table is more concerned about domestic pressures than protecting its international reputation.
4. A related disciplining catalyst is that people who stay in a small community have a long history of cooperation. Our housing colony is 40 years old and people have memories of cooperation and altruism. There is also the risk that reneging on a water deal right now would affect future behaviour of other residents. None of this is true in global climate change talks.
5. While water is not priced and hence market-based incentives cannot be used to curb usage, the city authorities have already imposed caps on our water usage. This is some sort of external enforcement that can cement a deal. In another context, the World Trade Organization does this for global trade. There is no such external enforcement institution as far as climate change commitments go.

Some political theorists and game theorists say that people are conditional altruists, standing between the cold utility maximizers of economics mythology and the saintly altruists of neo-Gandhian mythology. Conditional altruists do have an inbuilt concern for fairness but will follow selfish strategies because they fear that others will take a free ride on their commitments to good behaviour. They behave altruistically only when they are convinced that there are enough others who they can trust to behave similarly.
Such levels of trust take a lot of hard work, a history of reinforcing behaviour and credible assurances. It does not take much to realize that much of this was absent at the Copenhagen talks, which came close to being a morality play between the good guys and the bad guys.

The paper he has based his piece on is available at Partha Dasgupta's website here : Trust and Cooperation among Economic Agents, June 2009

The units that are subject to selection pressure in evolutionary biology are "strategies", which are conditional actions ("Do P if Q occurs"). In contrast, the units in economics select strategies from available menus so as to further their projects and purposes. As economic agents don't live in isolation, each agent's optimum choice in general depends on the choices made by others. Because their projects and purposes involve the future, not just the present, each agent reasons about the likely present and future consequences of their respective choices. That is why beliefs, about what others may do and what the consequences of those choices could be, are at the basis of strategy selection. In this article I construct a catalogue of social environments in which agents not only promise one another cooperation, but rationally believe that the promises will be kept. Unfortunately, non-cooperation arising from mistrust can be the outcome in those same environments: societies harbour multiple "equilibria" and can skid from cooperation to non-cooperation. Moreover, a pre-occupation among analysts with the Prisoners’ Dilemma game has obscured the fact that cooperative arrangements can harbour not only inequality, but exploitation too. The analysis is used to discuss why international cooperation over the use of global public goods has proved to be so elusive.

Wishing all readers a healthy and productive year ahead in 2010!

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