Masteroppgave i statsvitenskap, Institutt for statsvitenskap, Universitetet i Oslo
The Brazil-Norway Amazon agreement: A game-theoretic analysis
William Høie
Vår 2020 Antall ord: 23 578
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Abstract
Using game theory, this thesis aims to map the conditions (if any) under which the Amazon agreement between Norway and Brazil might be made self-enforcing. Modelling the agreement as a repeated Prisoner’s Dilemma, it first shows how the two countries have cooperated based on a strategy similar to Penance. It then analyses President Bolsonaro’s decision to defect in 2019 and, drawing on strengths and weaknesses of Penance, identify factors that might have undermined the agreement. I argue that the main reason why Brazil defected is that the election of President Bolsonaro represent a change in Brazilian
preferences entailing that they now value their sovereignty over the Amazon higher than Norway’s financial transfers. This thesis ends by considering various approaches Norway might take in order to restore cooperation. I also discuss possible measures that could have been incorporated into the agreement from the beginning to avoid defections.
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Preface
I thank everyone who has contributed to the realisation of this thesis. I give special thanks to my supervisor Jon Hovi for his advice and feedback.
I also thank Vedis Vik from the Norwegian Climate and Forest initiative who have helped with information and knowledge. In addition, I extend thanks to Erlend Andre T.
Hermansen and Solveig Aamodt who provided background information.
Thanks also to my family, who served as moral support to get me through a sometimes very stressful endeavour.
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Table of content
Abstract ... 1
Preface ... 2
Overview of tables and figures ... 5
1.0 Introduction ... 6
1.1 Background ... 6
1.2 Literature review ... 7
1.3 Research Question ... 9
1.4 Research Design ... 10
1.5 Organisation of thesis ... 10
2.0 Background ... 12
2.1 Introduction ... 12
2.2 Why the rainforest? ... 12
2.3 Entering cooperation ... 13
2.3.1 Brazil... 14
2.3.2 Norway ... 14
2.4 Results of NICFI and REDD+ ... 15
2.5 The advent of Bolsonaro ... 18
2.6 Conclusion ... 20
3.0 Theory: Repeated games ... 21
3.1 Introduction ... 21
3.2 The basics of repeated games ... 21
3.3 The base game ... 22
3.4 Strategies ... 25
3.4.1 Grim trigger ... 26
3.4.2 Tit for tat ... 26
3.4.3 Penance ... 28
3.4.4 Equilibria ... 30
3.5 Conclusion ... 31
4.0 Strategy: Norway ... 32
4.1 Introduction ... 32
4.2 Theoretical argument ... 32
4.3 Empirical argument ... 34
4.4 Conclusion ... 36
5.0 Penance: A strategy in play ... 37
5.1 Introduction ... 37
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5.2 Framework ... 37
5.3 What is a successful strategy ... 37
5.4 Played against….. ... 38
5.4.1 Always cooperate and always defect ... 38
5.4.2 Grim trigger ... 40
5.4.3 Tit for Tat ... 41
5.4.4 Itself ... 43
5.5 Conclusion ... 44
6. Why Brazil defected ... 46
6.1 Introduction ... 46
6.2 The defection ... 46
6.3 Change in w ... 47
6.4 Relative gains ... 49
6.5 Change of strategy ... 51
6.6 Change in preferences ... 52
6.7 Conclusion ... 54
7.0 Response to Brazil’s defection ... 55
7.1 Introduction ... 55
7.2 Norway-Brazil: Can cooperation be restored? ... 55
7.2.1 Mediation ... 55
7.2.2 Issue linkage ... 57
7.2.3 Sanctions ... 58
7.2.4 Await restoration of the previous equilibrium ... 60
7.2.5 Discussion ... 61
7.3 How might parties handle future preference change ... 63
7.4 Conclusion ... 68
8.0 Summary and main findings ... 70
8.1 Summary ... 70
8.2 Main findings ... 71
Bibliography ... 73
Attachments ... 79
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Overview of tables and figures
• Table 1.1, p. 8
• Figure 2.4.1, p. 16
• Figure 2.4.2, p. 18
• Table 3.1, p. 23
• Table 3.2, p. 25
• Table 3.2, p. 31
• Figure 5.4.1, p. 40
• Figure 5.4.2, p. 41
• Figure 5.4.3 p. 42
• Figure 5.4.4 p. 42
• Figure 5.4.5 p. 43
• Table 6.1 p. 49
• Table 6.2 p. 53
• Table 7.1 p. 58
• Figure 7.1 p. 59
• Figure 7.2 p. 67
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1.0 Introduction
1.1 Background
In this thesis I study the agreement between Norway and Brazil on fighting deforestation in the Amazon rainforest.
In 2008 Norway and Brazil entered into an agreement about cooperation on the preservation of the Amazon rainforest. Norway promised to contribute 1 billion USD to the Amazon Fund up to 2015 if Brazil managed to reduce the deforestation of the Amazon rainforest. During the 2009 UN climate meeting in Copenhagen, Brazil promised to reduce deforestation by as much as 85% by 2020 compared to the average deforestation during the 1996-2005 period. During the 2015 climate meeting in Paris the Norwegians and the
Brazilians announced that they would continue their cooperation until at least 2020. In 2015, Norway also transferred the last of the 1 billion USD promised in 2008.
The agreement is often referred to as a success. During the period 2008-2017, Brazil reduced the deforestation by 65% compared to the average of the 1996-2005 period.
According to the Norwegian government, the reduction in deforestation in the Amazon probably stands for the single biggest environmental benefit in the world. They also emphasize that, according to the UN, Amazon deforestation makes up 11% of global CO2
emissions.
When the agreement was made, the Brazilian Worker’s Party was in government.
Then president Luiz Inácio Lula da Silva promised to reduce deforestation when he came into office in 2003, and during the 3 first years of the Lula presidency deforestation declined. The Brazilian Worker’s Party was committed to the fight against deforestation but admitted it would not be possible without outside help. Protection of the rainforest is one of the single most important climate efforts in this world, and it is imperative that agreements that lead to its survival are kept and enforced.
The stance of the Brazilian government changed drastically when President Jair Bolsonaro was elected in 2018. A year later, Bolsonaro told the world that he considered it to be a misconception that the Amazon was a part of humanity’s common legacy, and that the rainforest could be described as the lungs of the world. Bolsonaro considers the Amazon the property of Brazil, and Brazil alone.
7 Bolsonaro has reneged on Brazil’s earlier promises in concerning its rainforest
conservation policy. This has resulted in growing endangering of the Amazon rainforest.
Bolsonaro’s behaviour is not only threatening a forest might constitute a requirement for human life on this planet but has also strongly diminished Brazil's international standing. This policy shift has also damaged Brazil’s economic outlook with several EU states. For example, French president Macron has threatened to veto the EU-Mercosur trade deal.
After several years of reduced deforestation in the Amazon, the trend has now turned more and more of the Amazon is lost every year. Previously, a successful attempt to combat deforestation has been the agreement between a collaboration of nations, with Norway as the main contributor, and Brazil. Today, the payments this agreement supplied to Brazil have ceased after the increase in deforestation, in large part due to forest fires that many blames on the Bolsonaro government’s policies, and a unilateral decision by Brazil to change the
governing structure of the Amazon fund. Norwegian authorities have taken as these events a Brazilian defection. In 2019, Norway suspended the transfer funds to Brazil. The Brazilian government has also threatened to disband the entire Amazon fund if the other parties do not grant the Brazilian central authorities’ greater control over the fund. So far, Norway has rejected these demands. However, the Norwegian government has entered into a dialog with the Brazilians, hoping to avoid a direct conflict and the disbanding of the fund.
1.2 Literature review
Many international environmental problems are derived from a tragedy of the commons scenario. A tragedy of the commons occurs when interdependent actor’s cause a sub-optimal aggregate outcome by maximising individual benefits (Badie, Berg-Schlosser, Morlino, 2011). The concept was first introduced by Garrett Hardin in a 1968 article considering the example of a pasture open to all. In the pasture everyone has incentive to bring in an additional animal as this will increase the herdsman’s own benefit, while the cost is shared by all the herdsmen using the pasture. The result is that the pasture suffers
overgrazing and so everyone ends with a poor outcome, losing their animals to starvation as there is not enough grass to go around(Hardin, 1968).
In the case of international environmental cooperation, it’s clear that every nation has incentives to increase its usage of fossil fuels and resources to gain economic benefit as a
8 small increase in one nations usage will not be the end of the world. However, when every nation does so it might literally mean the end of the world.
In game theory the tragedy of the commons was first modelled through what is called the prisoner's dilemma (PD). The PD game was first framed by Merrill Flood and Melvin Dresher in 1950, before it was formalized by Albert W. Tucker (Brown, McLean, McMillan., 2018). The standard PD example is two prisoners who are separately given the opportunity to tattle at each other. If one tattle and one keep silent the one who tattles will go free while the
one who keep silent will get a very long prison sentence. If both tattle they will both be looked away but with a light sentence reduction, if both keep silent they will only be locked up for a short while. If we call no sentence T, short sentence R, long sentence with reduction P, and long sentence S, the prisoners’ preferences will be T > R
> P > S(Brown, McLean, McMillan, 2018; see table 1.1). Both prisoners individually have an incentive to tattle no matter what the other prisoner does. Hence, the only Nash equilibrium is (P,P), a sub-optimal outcome. However, if both keep quiet both prisoners achieve the pareto- optimal result (R,R).
The tragedy of the commons problem might be solved from the individual level all the way to the global level, and many researches have contributed to understanding it. Still, there is no obvious recipe for making the prisoners cooperate in a one-shot. This changes when the game is infinitely repeated. Axelrod (1981) is one of many who have helped us move our understanding of long-term cooperation forward. Using computer tournaments and
simulations, Axelrod discovered that the most viable strategies were cooperative. Rather than exploitive. In particular, he showed that overcoming the PD cooperation problem is possible in a repeated game by using strategies that are cooperative, repercussive, forgiving a clear. A cooperative strategy is one that when choosing between cooperation and defection, keeping quiet or tattling in the standard PD example, cooperates the first turn and never being the first to defect. A repercussive strategy is one that reacts to the other players choices and punishes the opposing player for defecting through itself defecting giving the players a sub-optimal outcome worse than both cooperating. A forgiving strategy is one that after a plyer has defected but then cooperates again will also return to cooperating ending any punishment.
9 The final hallmark Axelrod discovered was that a successful strategy consisted of a pattern easily understood by the opponent, being clear.
The Amazon rainforest can be linked with Hardin’s pasture.. In its simplest form climate change mitigation is a PD (Wood, 2011). A game-theoretical approach can help us understand participation and compliance in international agreements, the role of coalitions, and the role of conditionality when bargaining over emission reductions(Wood, 2011).
Concerning the issue of Bolsonaro’s defection, there is still a lack of peer reviewed articles as he was elected in 2018 and took office in early 2019. This thesis must therefore rely on current sources such as media reports and official statements. In addition, I have interviewed the officials responsible for the agreement in Norway.
1.3 Research Question
The overarching research question of this thesis is:
“What are the conditions (if any) under which the Amazon agreement might be made self-enforcing?”
This question lies at the root of the problems of this particular case of a country
reneging on a previous commitment, that of reduction in deforestation, part of an international agreement. It also goes to the heart of a greater question of how to achieve long-term stable cooperation concerning climate change and nature conservation. It is my hope that this thesis can contribute somewhat to this greater debate as well, despite being primarily focused on the Amazon.
To build game theoretic models and analyse them, some other questions must be answered in order to able answering the overarching research question. These questions act as a guide through the case study of the Brazilian and Norwegian Amazon agreement. Why was the agreement entered into to begin with?
● Why was the agreement entered into to begin with?
● What were the two parties’ interests at the time, and what made them believe that the agreement would be upheld by both parties?
● Why was the agreement broken?
● Could the agreement be renegotiated so that both parties would keep it?
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● How could an agreement of this kind be designed to make it self-enforcing and avoid defection?.
1.4 Research Design
This thesis focuses on cooperation between Norway and Brazil. Nevertheless, there are other parties and contributors to the Amazon fund, like Germany. The reason I choose to focus primarily on Norway and Brazil is because Norway as by far the largest contributor and Brazil as the recipient country are the most central countries which without the agreement could not exist. As already mentioned, thesis will utilize game theory to seek a comprehensive understanding of why Brazil has defected, and whether cooperation can be restored between the two nations. I will use a repeated-game framework in which I assume that each period lasts one year. This assumption reflects the fact that the agreement concerned commits Norway to make yearly payments, depending on Brazil’s achievement s in combatting deforestation through the previous 12 months. I use a repeated game with a PD base game.
I then discuss strategies aimed at establishing self-enforcing agreements within the framework of a repeated PD game. I argue that the agreement has been self-enforcing through the parties using a strategy often referred to as Penance and show how this strategy can underpin and sustain cooperation.
Next, I use the model to explore why Brazil defected. Having investigated several possible culprits for the defection, I argue that the defection was caused by a change in their Brazil’s preferences..
I then turn to possible ways to restore cooperation. After investigating several possible options, I argue that a mix of mediation and issue linkage would have the best chance of success.
Finally, I discuss whether the original agreement could have, in hindsight, been designed in a way to might have avoided any defections in the first place.
1.5 Organisation of thesis
The structure of the thesis largely follows the questions mentioned in section 1.3. In chapter 2, provide background information, and explain why the agreement was negotiated in.
In particular, I discuss what motivated the parties. This chapter also begins answering the
11 second question of what the parties’ interest were at the time, and what made them that
believe the agreement would be upheld.
Nevertheless, this question will follow us through subsequent chapters as well. In the following chapter, I explore the concepts of a repeated game and a self-enforcing agreement.
It also established the PD as the base game for the repeated game at time when cooperation began. I consider three different strategies for accomplishing the mentioned goal of self- enforcing agreements: Grim Trigger, Tit for Tat, and Penance.
Afterwards in chapter 4, I discuss which of these strategies is the most likely
approximation to the strategy used by the Norwegians to sustain cooperation. This chapter gives both a theoretically based argument, and an empirically based argument for which strategy Norway has chosen. I find that Penance is the closest approximate.
The next chapter, chapter 5, concerns itself with how Penance plays versus other strategies in order to show both the strengths and limitations of this strategy. At the end of this chapter I believe I have fully presented my idea of why this agreement was created, and what have made cooperation stable.
Based on the findings of the theoretical limitations of Penance, chapter 6, explore several possible reasons for why the agreement failed and attempts to deduce the most likely reason to have caused Brazils defection. I argue that the most likely reason is that the Bolsonaro government represented a change in Brazilian preferences, this change undermines the necessary conditions for Penance to enforce cooperation.
Chapter 7 concerns itself with the two remaining questions from section 1.1. Here, I first discuss different ways to restore cooperation and then I turn to a hypothetical discussion of whether a different design of the agreement could have prevented Brazil’s defection in the first place.
Finally, chapter 8 offers a brief summary of my argument, and present the main findings of the thesis.
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2.0 Background
2.1 Introduction
In this chapter I will attempt to explain the factors that ended with Brazil and Norway agreeing to enter cooperation in 2008, and together work towards the reduction of
deforestation in the Amazon rainforest. In section 2.2, I will begin with a short explanation of why the Amazon is considered such an important part of the global ecosystem, and why tackling deforestation is so important to the global endeavour to reduce 𝐶𝑂2 emissions. In section 2.3, I will explain the domestic reasons of why Norway and Brazil choose this cooperation, and how that interplayed with the UN climate negotiations and regimes. In section 2.4, I will discuss the results of this collaboration, and how the deforestation reduction effort has worked. In section 2.5, I will discuss how this effort have been reduced due to the election of Jair Bolsonaro as Brazilian president. Finally, I will conclude in section 2.6.
2.2 Why the rainforest?
Among the rainforests of the world the Amazon is the largest. The Amazon covers 6 000 000 𝑘𝑚2 and makes up about 40% of the landmass of Brazil(Encyclopædia Britannica, 2019). We often hear the Amazon referred to as the lungs of the world, because of its ability to breathe in and store 𝐶𝑂2 (Amazon Aid Foundation, 2019). Through this process of
photosynthesis, the trees capture 𝐶𝑂2 emissions, mitigating the effect of human made climate change, and reducing global warming.
However, degradation and deforestation re-release 𝐶𝑂2 back into the atmosphere. 30%
of man-made 𝐶𝑂2emissions come from these two processes, and forests that have been a victim of these processes store 40% less 𝐶𝑂2 (Amazon Aid Foundation, 2019). The Amazon is also an important part of the world’s weather system, transpiring water which creates clouds to move moisture around the world. In addition, it provides local ecological services and is the home of most of the world’s land-based biodiversity(Amazon Aid Foundation, 2019). Without saving the Amazon and stopping deforestation, reaching any sensible international climate goal will be close to impossible.
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2.3 Entering cooperation
In 2008, Norway and Brazil entered into an agreement where they promised to work together to reduce and eliminate deforestation. This agreement was important for several reasons. Primarily, without greatly reducing and/or eliminating deforestation the world cannot reach it’s 𝐶𝑂2 emission targets in order to stay within the 1,5℃ or 2℃ global warming targets. Therefore, the Norwegian-Brazilian cooperation must be seen in the context of the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries(REDD+) which was also launched in 2008.
“ REDD+ creates a financial value for the carbon stored in forests by offering
incentives for developing countries to reduce emissions from forested lands and invest in low- carbon paths to sustainable development. Developing countries would receive results-based payments for results-based actions. REDD+ goes beyond simply deforestation and forest degradation and includes the role of conservation, sustainable management of forests and enhancement of forest carbon stocks.”(UN-REDD, 2019)
The agreement was created to fulfil the goals of REDD+, and was established through a memorandum which states its goal as
“to foster partnership between Norway and Brazil on issues of Climate change, biodiversity and sustainable development. Of particular importance is the establishing of a comprehensive political dialogue on these issues, and close cooperation regarding the reduction of greenhouse gas emissions from deforestation and forest degradation, on the development, application and transfer of clean technology and on sustainable development.”
(Norwegian and Brazilian governments, 2008)
It’s necessary to point out that the Norwegian-Brazilian cooperation is only one element in the Norwegian government’s international climate and forest initiative(NICFI), although being the largest part, which is administered through the Norwegian ministry of climate and environment. The NICFI has 12 different recipients and collaborative partners, but Brazil had in 2017 received 8 229 480 000 NOK of the 13 488 293 827 NOK the Norwegian government have disbursed (NORAD, 2017). One could therefore claim that without Brazil, there would be no NICFI.
14 2.3.1 Brazil
In 2003, Luiz Inácio Lula da Silva (henceforth Lula) was elected president of Brazil as the first left wing candidate in almost four decades. Lula’s workers party was a coalition of many interests that are often seen as left wing, among others environmentalism (Morton, 2005, p. 14). Still, through Lula’s first few years he was accused for setting the unions concern of short-term job loss above environmentalist concerns about deforestation. In 2005, the Brazilian green party quit the government coalition over environmental issues, and it was at this time the executive director of the Brazilian Greenpeace affiliate, Frank Guggenheim, said: “This government in environmental issues is much more conservative than former governments, going back to 1988” (Morton, 2005, p. 14-15)”. Although there were also other environmental issues, it was quite clear at this time that Lula’s legacy on the environment would be linked to the rainforest (Morton, 2005, p. 14).
Lula had taken some action on the rainforest, and through his first three years in government deforestation had been reduced (Foley, 2008). Lula had adopted a policy of creating several new conservations, but these conservations were dramatically understaffed and underfunded (Morton, 2005, p. 15). The lack of results and the loss of parliamentary and popular support explain why Lula in 2006 changed Brazil's stance on including deforestation in UNFCCC discussions. Lula also issued a plea to the international community saying that of course the Workers party was committed to the fight against deforestation, but they would not be successful without more funding (Foley, 2008).
2.3.2 Norway
In 2006 and onward, a combination of rising concern about climate change and criticism of a passive national climate policy spurred the Norwegian government into action.
With the IPCC’s fourth assessment report climate change became one of the most important questions on the international arena, and with the presentation of the finished work of a government commission presenting strategies for reduction in domestic 𝐶𝑂2 emissions made it impossible to remain passive (Hermansen, Kasa, 2014, p. 4). With signals coming that Brazil would not continue their opposition to include deforestation in UNFCCC discussions, and an increase in media attention around the link between deforestation and climate change, a window of opportunity was opened for the Norwegian government (Hermansen & Kasa, 2014, p. 4-5).
15 As the government’s position on climate change was condemned as weak by the opposition, it started turning to rainforest conservation as its flagship climate policy. When two of the largest environmental NGOs in Norway, the Rainforest Fund Norway(RFN) and the Norwegian society for the conservation of nature(FEN), endorsed the idea that Norway should cover 10% of the cost of REDD+, the government embraced the idea. The next year Norway's contribution to REDD+ became 50% of what the NGOs had suggested, and this led into the establishment of NICFI through enthusiastic negotiations with the opposition
(Hermansen & Kasa, 2014, p. 6).
Critics of the NICFI have pointed out that it’s cross-party support stems from the possibility to use it as political coverage to avoid painful domestic cuts, especially in the oil sector, which the Norwegian economy heavily relies on. The paradox of the Norwegian government using large amounts of rainforest conservation in Brazil while the Norwegian petroleum fund invested in environmentally dubious projects in Peru was also pointed out at the time in left-leaning media (Hermansen & Kasa, 2014, p. 10).
The NICFI exists largely due to the RFN and FEN. In 2006, when there was a large gap between the reality and expectation of Norway's climate policy, the two NGOs used the opportunity to push for an extremely ambitious project (Hermansen & Kasa, 2014, p. 21). The NGOs were aided by a change on the international arena, whereby the environmental issue became more important, and by Brazil changing its stand on deforestation as an international issue (Hermansen & Kasa, 2014, p. 4). Through the years, NICFI has increased in popularity, not only for its climate effect, but also because it provides an excuse to avoiding domestic emission reductions (Hermansen & Kasa, 2014, p. 22).
2.4 Results of NICFI and REDD+
The efforts of NICFI and REDD+ in Brazil have been largely successful. The
principles of the Norwegian-Brazilian cooperation are actually quite simple. Through a time period referred to as a forest year, 1st of August until 31st of July, Brazil uses two satellite systems to measure deforestation in the Amazon and use that data to create something called a deforestation number (Norwegian government, 2018). These two systems are known as DETER and PRODES. DETER gives reports every other week, creating a kind of real-time rainforest watch. Which gives Brazilian authorities the ability to act against illegal
deforestation with an accuracy previously unheard off. DETER can detect any lumber field of
16 0.25𝑘𝑚2or larger (Norwegian government, 2018). PRODES, on the other hand, can detect any lumber field of 0.065𝑘𝑚2or larger. Still, the data from PRODES takes a longer time to analyse than those from DETER, so while DETER operates in real time PRODES is used for more detailed yearly reports (Norwegian government, 2018). When the yearly report is ready, that year’s deforestation number is compared to a benchmark of a decadal average. Then the difference between the decadal average and the yearly deforestation is used together with a conservative estimate for deforestation 𝐶𝑂2 emissions to calculate how much 𝐶𝑂2 is let into the atmosphere compared to what would be let out with the average. Norway then pay 5 USD for every metric ton 𝐶𝑂2 saved into the Amazon fund (Norwegian government, 2018).
The result has been that, compared to the time period 1996-2005, the yearly average deforestation is down by 65% in the period 2008-2017 (Norwegian government, 2018). The Brazilians have achieved this reduction by using several different tools. In 2004, the
Brazilian government created an action plan against deforestation. The real time surveillance of DETER, together with strengthened environmental police, partially funded by the Amazon fund, has made crackdown on illegal logging much more viable. Through the help of foreign funding the Brazilians have managed to increase their conservation efforts by creating more and better protected conservations (Norwegian government, 2018). Today, the Amazon fund
17 supports 103 different projects, provides 720 million USD in support, and have distributed 484 million USD (Amazon fund, 2019; Garcia, van der Ree, Boas & Gramkow, 2019, p.113).
All in all, the fund has received 1 288 253 378 USD of which 1 212 378 452 USD have come from Norway (Amazon fund, 2019). The fund has through its activities befitted 162 000 people through sustainable production activities, carried out 687 environmental enforcement missions, support 65 % of all indigenous Amazonian land and 190 protected areas in the legal Amazon area. The fund has also helped project that together have produced 465 scientific or informative publications. There are 746 000 rural properties registered in CAR. (Garcia van der Ree, Boas & Gramkow, 2019, p.113).
“The Rural Environmental Registry (CAR) consists of an electronic registry of georeferenced spatial information of rural properties, with delimitation of permanent preservation areas (APP), legal reserves, remnants of native vegetation, consolidated rural areas and social areas of public utility…CAR registration enables the environmental and economic planning of the use and occupation of rural properties, and it represents a fundamental step in ensuring environmental regularity” (Amazon fund, 2019)
Through these efforts the Amazon fund has contributed to strengthen 95 different native people’s territories, protect over 100 rainforest conservations, which are the main barriers against deforestation (Garcia, van der Ree, Boas & Gramkow, 2019, p.165),
supported more than 50 environmental agencies that patrol the forest and put out forest fires, aided in holding to account the actual owners of the forest and the perpetrators of illegal deforestation, and strengthen the Brazilian environmental police (Ibamas) (Norwegian government, 2018). Most of the projects evaluated show deforestation reduction in the implementation areas (Garcia, van der Ree, Boas & Gramkow, 2019, p.165)
The fund has worked with different partners. Among others local governments like counties and states, universities and third sector entities (Garcia, van der Ree, Boas &
Gramkow, 2019, p.115). The Amazon fund have had a proven ability to different actors together and promote sustainable development while reducing deforestation. Cooperating with the Brazilian development bank (BNDES) has given the fund a strong professional capacity, while the fund has enabled BNDES to better understand and developed its operations in sustainable development. The funds excellent transparency practises have become a milestone for BNDES projects. The fund has played a vital role in the
implementation and success of CAR (Garcia, van der Ree, Boas & Gramkow, 2019, p.163- 164).
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2.5 The advent of Bolsonaro
The first of January 2011 Lula left office. He was succeeded by his former chief of staff and party colleague Dilma Vana Rousseff (henceforth Rousseff). As the political heir of Lula, Rousseff continued his policies, also his policies concerning the rainforest. On the 12th of May 2016, Rousseff was suspended from office, awaiting the result of her impeachment and vice president Michel Miguel Elias Temer (henceforth Temer), started to serve as acting president. On the 31st of August 2016 Rousseff was impeached for breaking budgetary laws and removed from office, while Temer was sworn in as president. Temer hailed from the Centrist Brazilian democratic movement party (MDB) and so the 13-year long monopoly on the presidency of the Workers party was broken. Temer served as president until the 2018 elections, where he did not run for re-election.
After a controversial and brutal campaign, a new president was elected in 2018. Jair Messias Bolsonaro (henceforth Bolsonaro) from the social liberal party(PSL), a party he had joined that very year and cut ties with in 2019, was elected. Before joining the PSL and becoming its presidential candidate, Bolsonaro had been a member of 8 other parties. When Bolsonaro was elected, everything changed for the rainforest. In Bolsonaro, the Brazilians have chosen a president that puts short-term economic growth over the environment and the
19 Amazon (Aamodt & Hermansen, 2019). Through 2019, the Amazon has been engulfed by fires on a catastrophic level, increasing the annual loss of forest from 7900𝑘𝑚2in 2018 to 9762𝑘𝑚2in 2019(Butler, 2020). Although terrible, this development was strangely enough somewhat expected. There is usually a spike in deforestation when one administration exits and a new one takes over, as Brazil has many civil servants that are replaced with a change in administration (Rodrigues-Filho, Verburg, Bursztyn, Lindoso, Debortoli, Vilhena , 2014).
The problem with the Bolsonaro administration is that while new administrations usually take action to reduce deforestation again, the Bolsonaro government signals that no such action will be taken. Actually, the policies signalled by Bolsonaro would have a greater chance of increasing deforestation than reducing it, and Bolsonaro has the support of a majority in Congress (Aamodt & Hermansen, 2019).
Bolsonaro have already implemented several policies that will be detrimental to the efforts of reducing deforestation and plan to introduce other policies in the future. Among these policies one of the worst have been the slashing of the budget of the Ibamas making it close to impossible to stop and punish those who participate in illegal deforestation (Aamodt
& Hermansen, 2019). In the Amazon fund he dissolved the technical committee, who
calculate annual deforestation, and the Amazon Fund Guiding committee (COFA) (Aamodt &
Hermansen, 2019). COFA has been attributed with bringing together actors from federal and state governments, the business sector, the Third Sector and academia. The COFA enabled broad participation in discussions about the Fund’s strategies and built relationships of trust between the many actors, who were previously distant, which have been essential for the success of the funds work (Garcia, van der Ree, Boas & Gramkow, 2019, p.163). The head of the Brazilian institute for space research, which among other things run DETER and
PRODES, have been fired, and the Bolsonaro have spoken about wanting to privatize it (Aamodt & Hermansen, 2019). Bolsonaro have been hostile towards native groups and have changed key decisions in the government to reduce the protection of their rights. Which is detrimental to the rainforest as the native Amazonians are some of the forest’s strongest protectors. Bolsonaro have also dissolved the parts of the environment and foreign ministries that work on climate related issues, and his cabinet members are outspoken supporters of deforestation in favour of industries. The government is also considering reorganising and slashing its support to different NGOs (Aamodt & Hermansen, 2019).
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2.6 Conclusion
The Amazon Rainforest is essential to our world, and if we are to have any chance of reaching our goals in reducing 𝐶𝑂2emissions we need to reduce deforestation. This fact has amade Amazon deforestation reduction a global climate priority.
In section 2.3, it was shown how domestic pressure on the national governments made it necessary for both Brazil and Norway to adopt ambitious environmental policy positions.
The focus of Brazilian environmental groups on Rainforest deforestation made it impossible for the Lula government not to increase its effort in this area and change their stance on including deforestation in UNFCCC discussions, and a lack of founding made them seek out international partners. Meanwhile, a combination of wanting the most cost-efficient climate policy, and avoiding cuts in national oil production, made the Norwegian government also turn to the global scene. The combination and co-timing of these domestic pressures, and overlapping ambitions, opened a window of opportunity for the two nations which they seized.
In section 2.4, we saw how the collaboration between Norway and Brazil have by most measurements been a success. Using a combination of cooperation with civil society and native tribes, modern satellite technology and government intervention annual deforestation went down, and Brazil slashed it’s CO2 emissions.
The election of Bolsonaro have turned this development around. From 2018 to 2019 deforestation went up, and there is nothing that points to the Bolsonaro government doing anything to change this fact. There is on the other hand many things pointing towards the opposite, that by design or not the Bolsonaro government's policy will increase deforestation.
The Norwegian-Brazilian cooperation have been a huge success in the struggle against climate change, but this successful collaboration between nations now look to be about to collapse.
21
3.0 Theory: Repeated games
3.1 Introduction
To help understand the interaction between Norway and Brazil, I use a repeated game framework. In section 3.2, I present the underpinning principles of a repeated game. While in section 3.3, I show how the interaction between Norway and Brazil can be modelled through what is called a repeated prisoner’s dilemma, or PD, game. In section 3.4, I will discuss three of the most used strategies in game theoretical analysis of repeated PD games. The 3
strategies that will be discussed in this section is the Grim trigger, Tit for Tat, and Penance.
Finally, in section 3.5 I will summarize and conclude.
3.2 The basics of repeated games
When creating a game-theoretical model, one important aspect is that of time, including whether the game is a one-shot game or a repeated game. Repeated games are important, because real-world players often play a variant of the same game over longer periods of time. Thus, they can react to each other’s choices. In repeated games, the strategies are more complicated than the strategies in a one-shot game. Because the agreement between Norway and Brazil is a long-term agreement and not a one-off transaction it’s only natural that in this thesis repeated games will be in focus. A repeated game consists of a base game, which is a game that is repeated either a finite or an infinite number of times (Maschler, Solan, & Zamir, 2013, p. 519)
When constructing a repeated game, there are three elements of importance. One is the base game. The base game consists of steps 1 through 6 in Hovi’s (2008, p.27) recipe for game-theoretical analysis. The second element is that of time. Is the game finitely or infinitely repeated? If the game is finitely repeated, how many times will the players play the game?
The third element is how the players value current pay-off relative to future pay-off
(Maschler, Solan, Zamir, 2013, p. 520). This valuation is shown in the discount factor. The discount factor, w, equals the probability that there will be at least one more round, 𝛿, divided by (1 + the discount rate, r), formulaic this can be shown as 𝑤 = 𝛿
1+𝑟.
To analyse an infinitely repeated game an interesting question is whether it might be possible to design a self-enforcing agreement. According to Grundig, Hovi, Underdal, and Aakre (2012) a self-enforcing agreement fulfils three key criteria:
22 1. No party benefits from violating the agreement, given that no other party does so.
2. No other party benefits from withdrawing from the agreement, seen that no other party does so .
3. 1 and 2 are achieved without the interference of an external force.
3.3 The base game
In order to illustrate the different strategies to achieve a self-enforcing agreement we return to the recipe for game-theoretical analysis by Hovi (2009, p.27) in order to create a base game for when Norway and Brazil first entered into the agreement.
1. Who are the players?
The players in this case would be the Brazilian and the Norwegian governments.
2. What actions can they perform?
The actions they can perform will differ somewhat between the two states.
Brazil must either fight deforestation or do nothing. The Norwegian government must pay or withhold the agreed payment.
3. In what order do they act?
From the information presented in chapter 2 we can say that Brazil and Norway act simultaneous. Brazil decide whether to allocate resources and energy to the fight against deforestation in the coming year at about the same time as Norway decides whether to pay Brazil for the previous year’s results.
4. What information do the players have to act on?
The players have perfect information. Perfect information in game theory means that both players know what the other player and themselves have chosen in all previous periods. The players are assigned to have complete information in that they know each other's preferences and strategy set (the different actions a player can take).
Still, the argument that this game contains incomplete information can be made as we know the preferences of Brazil seemingly change at some point, and neither nation knew in advance that Brazil's preference would change. In such a scenario there is a strong argument to be made that the players do not fully know each other’s
preferences, therefore not possessing complete information.
5. What results do the different combinations of actions entail?
23 The easiest way of presenting this is in a matrix.
The matrix shown in table 3.1 allows us to easily track the outcome of any combination of choices. In the agreement between Norway and Brazil Norway is supposed for to pay when Brazil fights deforestation, I will therefore refer to this combination of actions as cooperation. Actions from one or both players that breaks with this agreement will be referred to as defection. This mean in any combination of actions where Norway does not pay or Brazil does not fight deforestation, or both.
6. What preferences do the players have concerning the different options?
Each combination of actions gives the players different payoffs. The payoff from defecting while the other player cooperates will be denominated as T, the payoff when both players cooperate will be R, the payoff of both players defecting is P, and the payoff from cooperating while the other player defects is S.
These payoffs have different values for the players, and the players valuation of the payoff determines which outcome the player prefer. For this thesis I will use the numerical payoffs in a valuation of 0,1,3, and 5, were the players consider 5 the most valuable payoff, and 0 the least valuable payoff. This valuation is utilized by Axelrod in his article and book, The Evolution of Cooperation, (1984). For the different players this valuation will look like this:
For Norway T > R > P > S and assigned the values:
- T = Deforestation actively reduced & money not paid = 5 - R = Deforestation actively reduced & money paid = 3 - P = Deforestation not actively reduced & money not paid = 1
24 - S = Deforestation not actively reduced & money paid = 0
The reason why Norway's preferences look like this is simple. From chapter 2 we know that Norway wants the most effective reduction in climate gas emissions that their financial resources can create. Therefore, Norway's primary goal in this context is the preservation of the Amazon rainforest. Consequently, Norway’s preferences aligned closest to the two outcomes where the Brazilian government takes an active role in the fight against deforestation. Still, the desire to receive the greatest payoff from the resources spent result in Norway preferring to achieve their desired goal for free rather than to pay for it. In a similar manner, if Brazil where to choose not to combat deforestation, robbing Norway of the possibility to achieve their goal, Norway would prefer not to pay and saving the financial resources for another endeavour.
While for Brazil T > R > P > S at the beginning of cooperation:
- T = Deforestation not actively reduced & money paid = 5 - R = Deforestation actively reduced & money paid = 3
- P = Deforestation not actively reduced & money not paid = 1 - S = Deforestation actively reduced & money not paid = 0
The stated goal of the Brazilian government at the beginning of cooperation was to combat and reduce deforestation in the Amazon rainforest. Still, a commitment to fighting deforestation does cost Brazil sovereignty over the Amazon Rainforest and its resources. In addition, the financial resources given by Norway could, at least in periods, probably at least partially be spent to achieve other goals the Brazilian
government. Brazil would therefore prefer payments without strings attached. Still, the Brazilian government did want to effectively combat deforestation, it is just that without foreign resources they were unlikely to succeed. Brazil’s second preference is as a consequence to commit to deforestation reduction and receiving the financial transfers so that they can achieve this goal. If Norway decides to withhold the transfers Brazil will prefer to not spend any additional resources on an endeavour they know they will lose.
Through following the steps supplied by Hovi (2009, p.27) for constructing a game theoretical analysis. I argue that one can construct the interaction between Norway and Brazil
25 concerning combatting deforestation as a repeated game with a PD game (see table 3.2) as the base game.
3.4 Strategies
The base game of a repeated game shows us the different ways that one period of that game can be resolved, but a repeated game transpires over more than one period, therefore a player must think about what actions can be taken throughout the following periods. When one thinks about repeated games in such a way one should remember the folk theorem. The folk theorem says that:
“In an infinitely repeated n-person game with finite action sets at each repetition, any combinations of actions observed in any finite number of repetitions is the unique outcome of some sub-game perfect equilibrium given 3 conditions” (Rasmusen, 1990, p. 92)
These three conditions are that the rate of time preference is 0 or positive and sufficiently small, that the probability of the game ending is 0 or positive and sufficiently small, and that the set of payoff combinations strictly pareto-dominate the minmax payoff combinations in the mixed extension of the one shot game is n-dimensional (Rasmusen, 1990, p.92).
What this means in practise is that in any infinitely repeated game any combination of actions that is better than the Nash equilibrium be sustained. At any time in an infinite game one player can be encouraged to punish another player, even if this action is hurtful to the punishing player, in order to achieve future benefit, as the aggregated payoffs for the remainder of the infinite game is greater the one period payoff, as long as w is sufficiently high. (Rasmusen, 1990, p.92).
26 In other words, a self-enforcing agreement is possible in any infinitely repeated
games. To achieve this there, exist a close to infinite number of strategies, but from this point on this subchapter will be dedicated to exploring three of the most commonly used strategies to achieve a self-enforcing agreement in game theory. These strategies are Grim Trigger, Tit for Tat, and Penance.
3.4.1 Grim trigger
Grim trigger, hereafter GT, is a strategy for enforcing an agreement where the players cooperate until a defection occurs, Thereafter the player defects indefinitely(McGillivray, Smith, 2000). GT is a self-enforcing agreement according to McGillivray and Smith(2000) if:
𝑤 ≥ (𝑇 − 𝑅)/(𝑇 − 𝑃)
In the case of Norway and Brazil, and using the payoffs above, this means that if they choose a GT strategy then they should have a self-enforcing agreement if:
𝑤 ≥5−3 5−1 𝑤 ≥0.5
If this condition is satisfied, 𝑤 ≥0.5, we should see continued cooperation.
The problem with GT is that if one of the players defects there is absolutely no way back to cooperation as GT demands defecting indefinitely. This means that if for some reason either Norway or Brazil were to defect, the entire agreement would be over there and then.
This would probably lead to a huge increase in deforestation, which would cause huge 𝐶𝑂2emissions. An efficient environmental agreement cannot allow this to happen.
3.4.2 Tit for tat
Tit for tat, hereafter TfT, is another strategy for creating a self-enforcing agreement.
To put it in simple terms, TfT instructs the player to cooperate in the first round, and then simply to do what the other player did in the previous round (Axelrod & Hamilton, 1981).
Since TfT only remembers one round back that means that if 𝑤is high enough TfT has the power to restore cooperation in almost any situation, except if both players play TfT(Axelrod, Hamilton, 1981). TfT can sustain lasting cooperation according to Axelrod and
Hamilton(1981) if:
27 1. 𝑤 ≥ (𝑇 − 𝑅)/(𝑇 − 𝑃)
2. 𝑤 ≥ (𝑇 − 𝑅)/(𝑅 − 𝑆)
If the first condition is not met then TfT will most likely descend into lasting defection. If the second condition is not met if both players are playing TfT they will enter a scenario where they end up with one player cooperating and the other defecting, and the next period the previously cooperating player will defect, and the previously defecting player will cooperate.
If w is not sufficiently high to ensure cooperation through the promise of greater future aggregate payoffs TfT can end up in two sub-optimal interactions. In our scenario with
Norway and Brazil using my numerical illustration we need:
𝑤 > (5−3)/(5−1)
𝑤 >0.5
if w > 0.5 does not hold true then the players would consider the one period payoff of
defecting more valuable than future aggregate payoff and both players would go for constant defection.
On the other hand, if not:
𝑤 > (5−3)/(3−0)
𝑤 > 0.66
then the two players would enter an alternation between defection and cooperation, with on player defecting on odd-numbered periods and cooperating on even-numbered periods, and the other player doing the opposite.
Herein lies the greatest problem with TfT for if the situation of alternating cooperation and defection or lasting defection comes into occurrence then there is no mechanism that allows the player to return to cooperation if both players play TfT. So, if either Norway or Brazil does not value the future sufficiently high then they might end up in lasting defection, or in alternating between cooperation and defection. Still, if the valuation of the future exceeds the threshold (⅔ in my numerical illustration) then both conditions are met and TfT fulfil Grundig, et al,’s(2012) 3 three requirements for a self-enforcing agreement.
28 3.4.3 Penance
Penance specifies that a participating country plays cooperation except if another participating country has been the sole deviator from Penance by defecting in the previous period, in which case defect is played(Asheim, Froyn, Hovi, Menz, 2006)
.
In order for Penance to be a viable strategy for achieving a self-enforcing agreement, two requirements must be met. The first requirement is the subgame perfection requirement, and the second is the renegotiation-proofness requirement(Asheim, Froyn, Hovi, Menz, 2006).
If both players cooperated in the previous period (t-1) then both players should have continued to cooperate in this period (t) achieving a payoff of R. Still, in order to achieve payoff T one player defects instead. The defecting player returns to Penance in the next period (t+1), and in order to restore corporation cooperates while the other player defects and ends with payoff T. After this period (t+2….) both players return to cooperation and returns to payoff R. If it gives at least the same discounted payoff to return to Penance as it does to defect, then it is rational to return to Penance(Hovi, 2009, p. 94)
By showing this formulaic the requirement for what the discount factor needs to be in order to return to penance to be rational becomes much clearer:
(1+ 𝑤)𝑅 ≥ 𝑇 + 𝑤𝑆(Asheim, et al., 2006; Hovi, 2009, p. 94)
which solved for w gives:
𝑅 + 𝑤𝑅 ≥ 𝑇 + 𝑤𝑆
𝑤𝑅 − 𝑤𝑆 ≥ 𝑇 − 𝑅
(𝑤)(𝑅 − 𝑆) ≥ 𝑇 − 𝑅
𝑤 ≥𝑇 − 𝑅 𝑅 − 𝑆
We must also investigate one type of sub-game. This sub-game begins with one player having defected in the previous period (t-1). The other player will therefore, if it continues to play Penance, defect in the current period (t). In this situation, it would never be rational for the other player to break with Penance. The question is whether the player that defected in period t-1 haves any incentive to defect also in period t. Therefore, for the rest of this
paragraph, I will focus on this player. If the player returns to Penance it will receive payoff S in period t and payoff R in period t+1. If the player chooses to defect also in period t then the
29 player will receive payoff P in period t and then payoff S in period t+1 to restore cooperation (Hovi, 2009, p.94-95)
Formulaically, the ratio between the two options must look like this for the player to return to cooperation in period t:
𝑆 + 𝑤𝑅 ≥ 𝑃 + 𝑤𝑆
Solving for 𝑤 gives us:
𝑤𝑅 − 𝑤𝑆 ≥ 𝑃 − 𝑆
𝑤(𝑅 − 𝑆) ≥ 𝑃 − 𝑆
𝑤 ≥ 𝑃 − 𝑆 𝑅 − 𝑆
We here find that Penance is subgame perfect equilibrium if:
𝑤 ≥ 𝑚𝑎𝑥 [𝑇−𝑅
𝑅−𝑆,𝑃−𝑆
𝑅−𝑆] (Hovi, 2009, p.95)
In the case of Norway and Brazil, using the numerical illustration from section 3.3, this means that Penance is a subgame perfect equilibrium if:
𝑤 ≥ 𝑚𝑎𝑥 [5−3 3−0,1−0
3−0] 𝑤 ≥ 𝑚𝑎𝑥[0.66 ,0.33]
𝑤 ≥ 0.66
“The requirement of renegotiation-proofness is satisfied in the present setting if not all players strictly gain by choosing collectively to restart cooperation at once instead of
implementing the threatened punishment when a deviation has taken place in the previous period”(Asheim, Froyn, Hovi, Menz, 2006)
Let's assume that one player erratically defects in period t and returns to Penance in period t+1. The requirements for weak renegotiation proofness demand that the other player is at least as well off by a return to Penance, as it is by renegotiating the agreement.
If we assume both players continue playing Penance, does not renegotiate, the player that defected in period t will return to cooperating. Meanwhile the other player that
30 cooperated in period t will defect to deliver the other player its punishment. Afterwards both players will cooperate in all following periods.
On the other hand, if the players renegotiate the player that did not defect in period t will cooperate, the opposite of what Penance demand in this situation. In so doing cooperation might be restored in period t+1 instead of period t+2.
If the player opts for a return to Penance then the player that did not defect in period t will receive a payoff of T in period t+1. Meanwhile, If the player chooses to renegotiate the player will receive a payoff of R. In both scenarios both players will receive a payoff of R in every period after t+1. Therefore, Penance is weakly renegotiation proof if 𝑇 ≥ 𝑅(Hovi, 2009, p. 89-90), as the result for the player that did not defect in period t is then at least as good of from continuing with Penance than it would be form renegotiating.
This condition is fulfilled by the assumption in my model, as for Norway and Brazil T=5 and R=3. 𝑇 ≥ 𝑅 and Penance in this game is weakly renegotiation proof.
3.4.4 Equilibria
All of the strategies GT, TfT, and Penance, are Nash equilibria under certain circumstances (Hovi, 2009, p. 90).
“In a Nash equilibrium, every person in a group makes the best decision for herself, based on what she thinks the others will do. And no-one can do better by changing strategy:
every member of the group is doing as well as they possibly can.” (Economist, 2016).
Where they differ is when it comes to whether they are subgame perfect equilibria and whether they are renegotiation proof.
Concerning TfT, if a player chooses to defect in period t-1 and returns to TfT in period t (i.e., plays cooperate like the other player did in period t-1) the players will end up in an eternal sequence of interchanging cooperation and defection for the rest of the game. TfT is therefore not a subgame perfect equilibrium (Hovi, 2009, p. 88)
GT and Penance are both subgame perfect equilibria under certain circumstances, but only Penance can be renegotiation proof under certain circumstances(Hovi, 2009, p. 90)
On the issue of GT and renegotiation proofness we can see that is if one player defects in period t then both players should defect from period t+1 and onwards. While if the players
31 break with GT and return to cooperation then they receive payoff R from period t+1 and onwards. So, if 𝑅 ≥ 𝑃, then GT is not renegotiation proof, and if 𝑃 ≥ 𝑅 then there would not have been an agreement to begin with.
In conclusion, of these three strategies, only Penance is a Nash equilibrium, a subgame perfect equilibrium and a renegotiation proof equilibrium(see table 3.3; Hovi, 2009, p. 90)
3.5 Conclusion
The focus of this chapter has been the achievement of a self-enforcing agreement. We began by considering how a repeated game is constructed through the repetition of a base game through more than one period and looking into what constitutes a self-enforcing agreement. Through constructing an example of a base game concerning the interaction between Brazil and Norway the combinations and consequences of their different actions was made clear and put into a system that will allow a greater clarity when studying them. Then the remainder of the chapter was devoted to different ways of creating a self-enforcing agreement and their strengths and weaknesses. According to the folk theorem any infinitely repeated game can sustain any outcome better than the Nash equilibrium, therefore a self- enforcing agreement should be possible in any infinitely repeated game, provided the discount factor is high enough. The three most common strategies used by game theorists to study the creation of such agreements are Grim Trigger, Tit for Tat, and Penance. GT’s strength can sustain a self-enforcing agreement through the threat of permanent defection if w is only at 0.5, but after defection there is no way back to cooperation. TfT can through reciprocity sustain a self-enforcing agreement if w is high enough and can find a way back to cooperation after defection if not both players are utilizing TfT. Penance can sustain a self-enforcing agreement though the threat of punishment from any defector but is still forgiving enough to return to cooperation if the defector is willing to take their punishment. Of all these three strategies only, Penance is a Nash equilibrium, a subgame perfect equilibrium, and a weakly renegotiation proof equilibrium.
32
4.0 Strategy: Norway
4.1 Introduction
The next step in this thesis is to identify the preferred strategy of Norway. From chapter 2 we know that Norway’s goal is to reduce deforestation of the rainforest, and we also know from chapter 2 that Norway entered into an agreement with Brazil, accepting to pay for Brazil working towards the end of deforestation. In Chapter 3, three different strategies for creating a self-enforcing agreement were presented. This chapter focuses on which, if any, of these strategies Norway use to attempt to make this agreement with Brazil self-enforcing.
This chapter puts forward different arguments to point towards which of the strategies; GT, TfT, and Penance the Norwegian government pursues. Further, I present two different ways of arguing which strategy is the most rational for Norway to utilize. First, I investigate a theoretical argument for which strategy would be the best, based on different criteria of effectiveness. Secondly, I discuss an argument based on empirical evidence found in the Norwegian government's reaction to the increase in deforestation in the Amazon. Finally, I pull on both the theoretical and the empirical arguments to conclude on which strategy is the closest approximate to the Norwegian one, and I explain why I think that the theoretical and empirical together point towards a strategy strongly resembling Penance.
4.2 Theoretical argument
Assume that w is sufficiently high, so that the GT, TfT, and Penance fulfil the conditions presented in chapter 3. The Norwegian government should then rationally choose the strategy that gives the greatest chance of ensuring a continuous self-enforcing agreement.
Given these premises, it’s hard to see in that TfT could be preferable to Penance. TfT and Penance are both cooperative, reciprocal, and forgiving (Hovi, 2009, p. 90). The main
differences between Penance and TfT is that Penance offers a way back to cooperation even if both players are following the Penance strategy, while if both players are playing TfT then if defection occurs there is no way back to cooperation. In addition, Penance is a sub-game perfect equilibrium and weakly renegotiation proof, on the other hand as shown in chapter 3 TfT is not a subgame perfect equilibrium and therefore cannot be a renegotiation proof equilibrium. Through these arguments we can see that Penance has more stability supporting mechanisms and lack one of TfTs greater flaws (Hovi, 2009, p. 91). In other words, for our purposes Penance is preferable to TfT.
33 This leaves the choice between Penance and GT. While Penance is weakly
renegotiation proof, and GT is not. However, GT has other strengths which Penance lack. The finality of GT, which in some cases is its greatest weakness, is in some scenarios its greatest strength. In international politics, an example would be if two allied nations share intelligence and it just so happens that one of them was selling that intelligence to the other’s enemy. Such an ally one would no longer share intelligence with ever, and the knowledge of this eternal loss would be a deterrent against doing such a thing, especially if both nations have other allies they could build intelligence sharing networks with. In such scenarios of trust-building relations, GT might be the preferable strategy (Hovi, 2009, p. 91).
In contrast, Penance is preferable if a permanent break with the current collaborator is simply not possible or extremely costly. This can be the fact between nations that are close neighbours and share management over important resources such as fisheries. A permanent break between such nations might lead to a tragedy of the commons concerning their common resource. In addition, a country does not decide their geographic placement and neighbours will always be there and be required for solving common problems. Thus, permanently damaged relations to a neighbour can be undesirable. So, if a permanent break is impossible or highly undesirable, or if no other good option exists, then Penance would be preferable as strategy over GT (Hovi, 2009, p. 91).
In 1980, Axelrod completed an experiment where he allowed several different strategies to play out a repeated game of the Prisoner's Dilemma against each other to ascertain which strategy would be the one to yield the greatest payoffs in relation to all the other strategies. The results were first used as the basis for an article (Axelrod & Hamilton, 1981), and then a book (Axelrod 1984). In these two works both titled the Evolution of Cooperation, Axelrod put forward four hallmarks of a successful strategy for successful cooperation. These four hallmarks are willingness to cooperate, retaliating, forgiving, and clear (Axelrod, 1981). Willingness to cooperate includes things like not being the first to defect, and not to be envious of your opponent’s gains. Retaliating means that the strategy is willing to punish a defecting player. Forgiving means that the strategy is not afraid to
cooperate with a player that has previously defected. Lastly, a clear strategy is one that is easy to follow and for the opposing player is easy to recognize, if your opponent knows what you are doing he/she will know that defection will be punished, but as long as they themselves have not defected they do not need to fear defection.
34 When looking at our three strategies, these hallmarks are easily recognised. First, GT is not forgiving, when a defection has occurred there is no way back to cooperation. GTs is the most retaliating strategy, but in the ultimate retaliation there is no room for forgiveness.
TfT is forgiving to almost any strategy except itself, as if both players play TfT and one for some reason defects, there is no way back to cooperation. Meanwhile, all three strategies are willing to cooperate, retaliating, and clear.
4.3 Empirical argument
The Agreement between Brazil and Norway is based on the principle that payment is given for accomplished reductions in deforestation. Especially the Norwegian government stresses this point (Norwegian government, 2018). This is further supported by Article 2 of the memorandum of understanding that established the agreement (Norwegian and Brazilian governments, 2008) By structuring the agreement in this way, there is already a built-in element of enforcement. As such an agreement structure allows the payments to increase or decrease with an increase or decrease in Brazil’s deforestation efforts. Although such an agreement structure points us towards TfT or Penance, the question remains what the Norwegian response would be to a complete collapse in the Brazilian effort. One thing is differing results in the deforestation work caused by other factors than effort put in, but what the response to a complete seizure of all effort to end deforestation is something else entirely.
Norway’s response to the actual choice of Brazil of whether to fight or not fight deforestation, is a main focus of this thesis.
In August 2019, the Norwegian Department of the environment decided to stop all payments to Brazil. The argument was that Brazil had broken the agreement between the two countries, that is Brazil had defected. Norway pointed to Brazil's unilateral decision to shut down the board of the Amazon Fund and to the fact that the increase in deforestation in the Amazon between July 2018 and July 2019 was a staggering 278% (Røst, NTB, 2019). “What Brazil has done proves that they are no longer interested in bringing an end to deforestation.”, the then Norwegian minister for climate and the environment Ola Elvestuen said.
Given that the Brazilians have defected, they are no longer working towards ending deforestation in the Amazon, the Norwegian response is an indicator of which strategy the Norwegians pursue. As a response to the Brazilian defection we know that Norway has chosen to defect. This action in itself does not reveal whether the Norwegians are playing GT,
