• Author: Ethan B. Kapstein (Princeton University)
• Title: Side Payments in World Politics: Theory and Practice
• Journal: Global Policy

From military alliances to environmental agreements, countries seeking to partner with other states will often sweeten the deal with side payments in hopes of persuading them to come onboard.

For example, a wealthy industrialized state may be negotiating with a developing state to join a coalition in reducing global warming. “The rich nation,” writes Ethan B. Kapstein in Global Policy, “may seek an environmental agreement because its constituency places great value on climate change, while the developing country's constituency places greater value on short-term economic growth and poverty alleviation. In this setting, joining the agreement could be costly to the developing country in terms of lost national income and jobs, making politicians loathe to participate.”

In such cases, he adds, side payments from industrial countries to those in the Global South may be needed to close the policy gap.

Scholars have published numerous papers stressing the importance of such payments to international bargaining. Yet there is no real enforcement mechanism to ensure that each side does what it has agreed to do. This has left the literature with contradictory conclusions on the circumstances that most often lead to fulfillment of the terms. In the case of climate change, for example, industrial countries have disbursed to countries in the Global South billions less in funding than they have committed to. This leads to skepticism about the credibility of such commitments.

“The question I asked myself,” said Kapstein, executive director of Princeton SPIA's Empirical Studies of Conflict Project and a lecturer with rank of professor, “was: Under what conditions can states offer side payments most credibly?”

Kapstein reviewed the relevant literature – mostly in game theory and international agreements, especially those in the environmental arena – to compare the scholars’ theories with what actually happens when these deals are struck.

What Kapstein found is that the lower the costs of a side payment – either politically or economically – the more likely both sides are to adhere to its terms.

In other words, he writes, “commitments to side payments (and associated actions) will be discounted given the absence of ‘binding agreements’ in international relations, lowering the overall expected payoff from cooperation. It is this uncertainty of commitment, alongside such issues that are common to international cooperation including free riding behavior, that may serve to undermine cooperative arrangements.”

Given the disparity between the presumed and actual circumstances under which side-payment agreements are effectively executed, Kapstein believes it is crucial for all parties to be clear on the conditions most likely to produce positive results. First, the states must have differing preferences for the outcome being negotiated, and second, as noted above, the payment must not be too costly either politically or economically.

Conversely, he adds, side payments may not be effective when countries can "free ride” on the benefits generated by an agreement, or either the government offering the side payment or the one receiving it lacks credibility.

“Side payments are usefully thought of as a ‘flow’ rather than as a one-time transfer, since countries may need continuous inducements to remain within an agreement,” Kapstein says. “Given the need to make a stream of payments, it is more likely that side payments will be ‘small’ rather than ‘large.’”

Kapstein plans to continue researching side payments, focusing on military alliances. Next spring, he will teach a Policy Task Force for Princeton SPIA that will explore the issue.