Game Theory and International Governance

Game theory can be used to analyze the possibilities, as well as the potential barriers of achieving effective global governance. Global governance refers to the way international cooperation is achieved on a global scale and illustrates the centralization of states’ governance. Game theory can be used to express the potential cooperation if certain criteria are met while also showing the potential for failure if states are left to themselves.

The United States and China’s interdependent relationship is based on two important economic factors. On one hand, the United States imports far more goods and services from China than vice-versa. On the other hand, China is the biggest foreign lender to the United States. Economic imbalances between the United States and China have increased foreign policy relationships that reveal both mutual interests and frictions. However, there is uncertainty about the intentions and future actions of the both countries. Both states would cooperate with each other if they knew that the other side would not cheat on them, but the fear of being cheated may lead both sides to not cooperate. Economic theory claims that the United States and China would both gain by cooperating and would miss out on a better solution if they did not.  It would also be beneficial if these great powers took time to think alike. This would help ensure that both parties make the right and same choice in order to avoid the negative outcomes caused by making different choices. A failure in coordination in this situation can undermine long-term economic gains to both sides. 

These scenarios highlights both possibilities and barriers to cooperation and effective global governance, which can be modelled as a game between two states and can be analysed through a game theory approach. In situations of interdependency, one side’s expectations and preferred actions depend on the actions available to the other side, and what is known about their preferences. Game theory assumes that there are only two players that know each other’s preferences and available actions.  They can use the game in order to calculate the outcomes from each combination of strategies, along with the gains or losses they’ll receive from these. This portrays the prisoners’ dilemma, where players would prosper more by cooperating, but the threat of losing out if another player does not cooperate means that both play the non-cooperative strategy. It is only if both states cooperate, will it produce all-round gains. However, they can choose not to cooperate to avoid being the one who is punished by cooperating while the other doesn’t.

Despite the prediction of non-cooperation in game theory, both China and the United States have joined the WTO and settled various agreements that commit them to setting low tariffs. Altering payoffs so that non-cooperation is no longer a dominant strategy is another way of ensuring cooperation. The WTO for example tries to enforce cooperative outcomes by enforcing low tariffs, monitoring countries trade policies as well as imposing penalties if cheating occurs.  The problem of global governance in the international system is that most situations involve more than two players. The more players there are, the harder it is to reach a mutually beneficial solution through negotiation or repeated play. Although game theory is based upon strong assumptions that ignore a lot of constraints on decision making, it provides a useful understanding of real life events and can help establish the scope for international institutions to improve the outcomes of engagement between states.