Lame game

Can the West forestall an invasion of Ukraine?

As Russian troops mass on the eastern border of Ukraine, the United States and Europe ponder options to prevent an invasion.  How should they analyze these options?

Economists suggest this:  Given the option chosen by one player, determine the best response by the second.  This is “game theory” – a name guaranteed to bring undergraduates flocking into the classroom.

Our two players are Russia and the West.  Each has two options.  Russia can either invade or do nothing; the West can either impose sanctions or do nothing.  If the West does nothing, how will Russia respond?

Of course, Putin will invade.  Annexing eastern Ukraine is popular in Russia.  If it would cost him nothing, why not give the troops the green light?    

And…if the West imposes sanctions?  The response depends on the sanctions.  The West says it will begin by blocking foreign travel by low-level bureaucrats in the Kremlin.  If anything, this policy is more likely to induce an invasion than had the West sat on its hands.  A travel ban is easy to reverse, and it costs the West nothing.  Thus it signals that the West cares too little about an impending invasion to fight it with measures that it will find painful.  Had the West simply said it would do nothing at present, this at least could have reserved the possibility of doing something serious later.

Plugging the pipelines

A more effective option is to boycott Russian oil and gas.  Since Europe, especially Germany, relies on the Russians for much of its energy fuel, it would suffer from a boycott – signaling the Kremlin that it takes an invasion seriously.

Yet announcement of a boycott is also unlikely to stop an invasion, because the West cannot convince Putin that it will stick to the sanction no matter what.  If Putin invades, then the payoff to the West of a boycott will diminish, for two reasons.  First, the effects of an invasion will be difficult to reverse; Putin cannot just hand back eastern Ukraine to Kiev and tell it to never mind.  Also, a boycott over time will become more agonizing for Europeans, since it increases their energy costs and chances of recession.  Consequently, once the invasion occurs, the optimal response for the West is to end the boycott.  The Kremlin knows this, so it will not take the threat of a boycott seriously.

Some Western diplomats argue that a boycott can work against Russia because it worked against South Africa and possibly Iran.  But this situation is different.  Regarding South Africa, it was clear that the West would continue sanctions until Johannesburg had abandoned apartheid.  Continued sanctions were credible because their payoff to the West didn’t change much over time.  Consequently, if they were worth trying in the beginning, then they were worth continuing a few years later.  Thus Johannesburg could easily believe that the boycott would continue.  But regarding Russia, the payoff to the West of a boycott would be smaller after the invasion than before it.  It’s not a credible threat.

In short, no matter what the West does, Putin’s best response is to invade.  Given this, the optimal response for the West (optimal in the short run, anyway) is to threaten a boycott (for purposes of publicity) until the invasion occurs – and then quietly drop it.

The problem is that the West lacks options.  Had it been able to threaten to use the military, then Putin might have thought twice.  Without that option, the West’s best hope is to somehow convince him that it will continue a boycott after any invasion.  Or it could offer him a carrot not to invade, but that could motivate him to threaten more invasions in the future, in order to collect more carrots.  Welcome to the peace dividend.  –Leon Taylor tayloralmaty@gmail.com

Good reading

Tyler Cowen.  Crimea through a game-theory lens.   New York Times.  March 15, 2014.

       

Thomas C. Schelling.  Arms and influence.  Yale University Press.  2008.