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On India/Pakistan

Please help make the Manifesto better, or accept it, and propagate it!
Mr. Atanu Dey may wish to examine the book Foundations of Pakistan's
Political Economy: Towards an Agenda fof the 1990s, edited and with an
Introduction by W. E. James & Subroto Roy, Sahe, New Delhi, London and
Newbury Park 1992; Karachi, OUP 1993.
This reached Mr. Nawaz Sharif in hand via my co-editor just before his
election for the second time, and he quoted from it.
Mr. Dey may also like to consult my article
"Was a Pakistani Grand Strategy Discerned in Time by India?" in the
July 1999 issue of Security and Policy Risk Analysis Bulletin, New

Subroto Roy

Subroto Roy.
-----Original Message-----
From: Atanu Dey <atanu@are.berkeley.edu>
To: debate@indiapolicy.org <debate@indiapolicy.org>
Date: Monday, November 22, 1999 10:08 AM
Subject: 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
>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
>irrespective of what happens next. When the highest bid is 95 cents,
>situation is not at all rosy for the second highest bidder. He stands
>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
>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
>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
>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
>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
>their ability to predict outcomes that obtain in the real world and
>to the extent that they explain observed behavior, they are useful.
>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
>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
>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
>"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
>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
>Islamic countries. The second scenario is unlikely unless India makes
>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
>                        atanu@are.berkeley.edu
>               PH: (510)643-0846     FAX: (510)643-8911
>              ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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