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Analysis: India-Pak conflict

Please help make the Manifesto better, or accept it, and propagate it!
I firmly believe that for India to make the right policy
decisions, Indians need to take a good hard look at reality.
 The 'Mera Bharat Mahan' attitude is akin to that of
a starving man suffering delusion of having a full stomach or
that of an ignoramus who thinks that all he knows is all that
there is to know.

India's policy response to the Kashmir problem has been a study
in the futility of denial and mypoia. I present a simple case for
making credible commitments to resolve the conflict.


Dollar Auctions and Deadly Games

Atanu Dey

The movie "War Games" produced in the late 80s concludes with the
protagonists reaching the stunning realization that the only way to win
in the game of nuclear war is not to play the game in the first place.
The Cold War was yet to be concluded then and people still lived under
the cloud of unease that a nuclear war would end it all for the human
race. With perfect hind-sight one wonders if there was any point in the
whole exercise of building incredible nuclear arsenals to obtain a
balance of terror in the game aptly called MAD--mutually assured
destruction. But games nations play often do not lend themselves to
rational explanations. Individuals too can exhibit irrational behaviour
or at least they may seem to be irrational until one examines the
structure of incentives that people face.

One enlightening model of human behavior is the so-called "Dollar
Auction" which illustrates the sort of trap that conflicts can lead to
with costly consequences. This auction proceeds much as a normal auction

except that while the highest bidder gets to keep the $1 bill bid upon,
the second highest bidder has to pay the auctioneer the amount of the
second highest bid.

This game played at a party leads to some unexpected outcomes
which result from the dynamics of conflict escalation. Players exhibit
irrationality in most cases and often the $1 bill is auctioned off for
many times its value. This happens because there is a trap in the
of the game where the loser not only does not get the prize but also
the amount he bid.

Suppose the auction begins with a bid of 5 cents. This is appealing to
most since 5 cents is worth bidding for a prize of a dollar. But as the
bidding proceeds beyond 50 cents, the players are caught in a trap. At
this point the game changes complexion.  Assuming that bids have an
increment of 5 cents, the person with the bid of 50 cents has an
incentive to outbid the higher bid of 55 cents. Otherwise he would lose
50 cents and the winner would gain 45 cents. Naturally, the bidding
continues upwards. The auctioneer from this point onwards stands to gain

irrespective of what happens next. When the highest bid is 95 cents, the

situation is not at all rosy for the second highest bidder. He stands to

lose 90 cents if he stops there. He also knows that his opponent stands
gain 5 cents. Therefore the bid reaches $1. The participants quickly
realize that it is no longer a game in which either of them would win.
The question from then on is whether one can stand to see one's opponent

lose less than oneself. Because at this point both lose money but the
"winner" loses a dollar less than the loser. The only winner in this
game is the auctioneer.

What are the modes of termination of the dollar auction? First, the
players could realize right up front the nature of the trap and refuse
to participate. No one loses and the auctioneer doesn't gain anything.
Once the auction starts, it is still possible for the players to exit
without losing. This happens if the players collude and decide to not
outbid each other and to stop before the highest bid reaches 50 cents.
They could agree to split the profits among themselves. And the
auctioneer loses money in this deal. This scenario does not occur
because co-operation requires accomodating one's opponent's interests
which may be inconceivable in a situation of escalating conflict.
Once past the 50 cent mark, the auctioneer is assured of a profit. The
game continues till one of the participants exhausts his capacity to bid

any more or one decides to cut his losses and fold. The winner is of
course not as badly off but still has the winner's curse of having paid
more than the value of the prize to win the prize.

The only way to win at a dollar auction therefore is either to not
participate or if one does begin, then to either reach a compromise with

one's opponent or to exit as early in the game as possible.

Wars too have the peculiar characteristic that both parties, winner as
well as the loser, pay. The dollar auction game illustrates the trap
that nations fall into in a process of conflict escalation given the
structure of strategic games.

The dollar auction is a perfect model of the conflict that India faces
against Pakistan, with Kashmir being the dollar being auctioned. The
bids in this auction are the military expenditure of each nation and
the auctioneer is the one who collects the spoils of the military
expenditures of the two nations. Since advanced industrialized countries

are the major suppliers of arms, they play the role of the auctioneer
quite well.

Models are abstractions of the real world and their utility derives from

their ability to predict outcomes that obtain in the real world and
to the extent that they explain observed behavior, they are useful. Does

the dollar auction model explain the observed behavior of the
participants of this Kashmir conflict? Consider the motives of the
auctioneer in the model. The auctioneer has an incentive to see that the

conflict is not terminated. The imminent bankcruptcy of one of the
participants could end the game. The auctioneer could offer to lend
money to the party on the verge of bankcrupty and at the same time
encourage the other party to continue with the bidding. The recent IMF
loans extended to Pakistan is an instance of this move in the real
world that the model predicts. The intervention of the AICs to end the
conflict would be parallel to the auctioneer, contrary to his interests,

stopping the bidding game. This would not happen in the model and it
does not happen in the world it attempts to model. One could be puzzled
by the seeming irrationality of the IMF lending money to Pakistan while
at the same time the AICs agreeing that India is the aggrieved party.
All puzzlement disappears once one notices that this strategy precludes
the possibility of the game ending too soon.

Nations are not monolithic entities. They are comprised of groups
with different incentives and interests. Even in the so-called
developing world there are groups whose interests align more closely
with corresponding groups in the advanced industrialized countries.
Politicians and arms dealers in poor countries stand to gain as much
from conflict escalation as do the owners of the military-industrial
complex of the advanced industrialized countries. The crowds who stand
at the sidelines and cheer on the combatants are the leaders, the
commanders, and the arms manufacturers of all the countries that are in
the conflict as well as those that just supply the arms. The average
citizens in both the countries stand to lose not just in terms of human
lives but also in terms of a lower standard of living necessitated by
the hardships imposed on them to pay for the military hardware bought
from the AICs.

In a recent op-ed piece titled "Stopping America's Most Lethal Export"
in the New York Times, winner of the 1997 Nobel Prize Oscar Arias wrote:

"While the arms industry profits, people throughout the world suffer...
the true weapons of mass destruction are the jet fighters, tanks,
guns and other military exports that the United States ships to non-
democratic countries--a record $8.3 billion worth in the 1997 fiscal
year, the last year for which figures are available."  Aside from
anything else, the incontrovertible fact is that war is costly for all
except for weapons manufacturers.

Kashmir has been immensely costly to India and in all likelihood Kashmir

would ultimately kill the already crippled Pakistan. While India is
likely to win in the end, it would have paid way too much in terms of
blood, sweat and tears. The problem is that India played the game
somewhat like a novice playing the dollar auction--raising the bid by 5
cents each time.

If the more powerful player in the dollar auction goes to the other
in the initial stages of the game and makes a credible commitment of
setting aside an amount greater than the amount the other can ever
bid, then the second player would find it rational to not bid at all.
This would be so because the second player knows that not only will he
lose for sure, but that it will be a fatal loss. This way, the first
player not only does not have to spend the money set aside but
actually wins the dollar for just 5 cents. The winner has to make a
credible threat to ruin the other party. Any vaccilation on the
part of the stronger party would preclude this outcome.

India should have announced that it was willing and capable of
outbidding Pakistan on the issue of Kashmir irrespective of what
Pakistan could ever afford to bid. A credible announcement does not
necessarily amount to actually spending the outrageous amount; it only
requires the demonstration of the will to do so if the contingency

However, now the game is at a stage where each country has already bid
an amount greater than the value of the prize. There are two outcomes:
one, the game ends with Pakistan going bankcrupt; or two, India and
Pakistan negotiate an end to the conflict with the border status quo
ante. It is unlikely that the interests that stand to gain from
continued conflict would allow the first possibility. Every time
Pakistan appears to be taking its last gasp, resuscitation in the
form of financial aid would appear either from the AICs or from oil-rich

Islamic countries. The second scenario is unlikely unless India makes it

very clear that it is willing to risk losing a large number of its
citizens in a nuclear attack by Pakistan.

Either way, India will suffer the winner's curse of having paid too
dearly for the prize. As in the movie _War Games_, the only way to win
is to not play the game in the first place.


Atanu Dey
                 University of California, Berkeley
               PH: (510)643-0846     FAX: (510)643-8911

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