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Using Incentives to Solve the Israeli-Palestinian Conflict
The very interesting Bruce Bueno de Mesquita has a good analysis of the Israeli-Palestinian conflict and a clever suggestion for moving forward:
“In my view, it is a mistake to look for strategies that build mutual trust because it ain’t going to happen. Neither side has any reason to trust the other, for good reason,” he says. “Land for peace is an inherently flawed concept because it has a fundamental commitment problem. If I give you land on your promise of peace in the future, after you have the land, as the Israelis well know, it is very costly to take it back if you renege. You have an incentive to say, ‘You made a good step, it’s a gesture in the right direction, but I thought you were giving me more than this. I can’t give you peace just for this, it’s not enough.’ Conversely, if we have peace for land—you disarm, put down your weapons, and get rid of the threats to me and I will then give you the land—the reverse is true: I have no commitment to follow through. Once you’ve laid down your weapons, you have no threat.”
Bueno de Mesquita’s answer to this dilemma, which he discussed with the former Israeli prime minister and recently elected Labor leader Ehud Barak, is a formula that guarantees mutual incentives to cooperate. “In a peaceful world, what do the Palestinians anticipate will be their main source of economic viability? Tourism. This is what their own documents say. And, of course, the Israelis make a lot of money from tourism, and that revenue is very easy to track. As a starting point requiring no trust, no mutual cooperation, I would suggest that all tourist revenue be [divided by] a fixed formula based on the current population of the region, which is roughly 40 percent Palestinian, 60 percent Israeli. The money would go automatically to each side. Now, when there is violence, tourists don’t come. So the tourist revenue is automatically responsive to the level of violence on either side for both sides. You have an accounting firm that both sides agree to, you let the U.N. do it, whatever. It’s completely self-enforcing, it requires no cooperation except the initial agreement by the Israelis that they are going to turn this part of the revenue over, on a fixed formula based on population, to some international agency, and that’s that.”
The article cited has a lot more on Bueno de Mesquita and the remarkable series of accurate predictions that he has made using rational choice modeling. See also this piece from Science News, The Mathematical Fortune Teller.
Posted by Alex Tabarrok on October 29, 2007 at 07:15 AM in Economics, Political Science | Permalink
Comments
Shimon Peres pitched the "New Middle East" as a market incentive for peace in the 1990s. He envisioned a Middle East made wealthy by free trade and cooperation. Most Arabs considered this concept an insidious Zionist conspiracy. (Those last three words are not meant ironically; the Arabs really thought that way.)
Posted by: A. Gehry at Oct 29, 2007 7:30:32 AM
But the tourist revenue, such as there is, goes into private hands. How is the governtment going to get hold of it without taxing hotels and restaurants or nationalising the industry wholesale? Doesn't sound like much of an incentive for anyone wanting to invest in the future...
Posted by: Bonapart O Cunasa at Oct 29, 2007 7:53:12 AM
Anyone have any recommendations for books on modeling and game theory?
Posted by: Different Jeff at Oct 29, 2007 8:01:03 AM
I hate to suggest that the proposal is naive, but the record reflects that Islamic militants from Hamas opposed the Palestinian tourist site that attracted the most revenue: the Jericho casino. Bueno de Mesquita is working from the false premise that the Palestinian utility curve heavily weights material profit maximization.
Posted by: Ted at Oct 29, 2007 8:34:51 AM
The notion of tourism revenue is incidental to this plan. More generally it is paying the Palestinians to be friendly to Israel (with tourism serving as one measure of such niceness). This has worked well with Egypt, but it has yet to work with the Palestinians. The income effect may lead to more terrorism and also create some of the classic problems with foreign aid or for that matter resource-rich seats of governance. The Israeli public may want to stop sending money if splinter groups (or were they the mainstream?) start a terrorist attack. It is a bad precedent to pay off a group not to attack, or there may be a threat of an attack to induce a preemptive payment. More specifically, the entire proposal seems quite "pre-Wall" to me. The notion that suicide bombers are scaring off tourists to Israel just doesn't seem that true today.
I think this remains an interesting idea, but it is less new than it sounds and I think of it as already having failed. The U.S. already has gladly signaled it would invest money if it could get a stable Palestinian authority in return.
Posted by: Tyler Cowen at Oct 29, 2007 8:38:34 AM
Leaving aside issues of how the money would get from the tourists into the hands of those with power to stop engaging in violence, it seems to me that this proposal overlooks the basic mindset that undermines most of the other proposals: the (seemingly) irrational preference for hurting one's rival/enemy over helping one's own position.
Regardless of the other causes for the violence, it has been going on long enough that the choice must be pretty clear for those involved. No one is about to give in to attrition, so the only reason I can see for it to continue is that at least one side broadly believes there is no other option.
Posted by: bobwylie at Oct 29, 2007 8:40:11 AM
Israel's reaction to the violence since 2000 has almost destroyed the economy in the West Bank. There GDP per capita has fallen by half since 2000. This shows that economic loss is not an effective way to control the violent groups. Also as long as Israel has this power, a solution based an improvement in the economy will still require trust by the Palestinians.
Posted by: joan at Oct 29, 2007 9:26:03 AM
Ted is right.
Economic incentives are ineffective because Islamic terrorists (like Hamas) are not rationally self-interested.
Otherwise, Osama bin Laden would be building skyscrapers instead of incinerating them.
Posted by: Joe Grossberg at Oct 29, 2007 9:28:17 AM
Bruce wrote:
"You have an accounting firm that both sides agree to, you let the U.N. do it, whatever."
The U.N. ? Whatever.
Posted by: indiana jim at Oct 29, 2007 9:51:31 AM
“Land for peace is an inherently flawed concept because it has a fundamental commitment problem. If I give you land on your promise of peace in the future, after you have the land, as the Israelis well know, it is very costly to take it back if you renege. You have an incentive to say, ‘You made a good step, it’s a gesture in the right direction, but I thought you were giving me more than this. I can’t give you peace just for this, it’s not enough.’ Conversely, if we have peace for land—you disarm, put down your weapons, and get rid of the threats to me and I will then give you the land—the reverse is true: I have no commitment to follow through. Once you’ve laid down your weapons, you have no threat.”
Ah yes, thanks for explaining to economists why the Coasean solution of paying nuisances to go away,
doesn't work, even though transaction costs are low.
Posted by: Person at Oct 29, 2007 10:07:39 AM
Hamas' opposition to a CASINO is not proof that Hamas would oppose ANY initiative..
I mean that's a CASINO. There are plenty of places where casinos/gambling are illegal and if i'm not mistaken, Israel itself is one of them.
The fact that Hamas opposed it is not proof that it opposes tourism. at all.
Posted by: nu at Oct 29, 2007 10:08:24 AM
How about using these models to predict the outcomes of peace initiatives in the middle east.
What would rational choice theory have predicted for Oslo? Or to keep things current: What does it predict for the current Annapolis meetings? What scope will the Annapolis document have (an easy one if you ask me)? What will be the domestic political implications for Olmert in Israel and Abbas and Hamas in the PA? Can rational choice modeling be used to answer these types of questions?
Posted by: Noam Fischman at Oct 29, 2007 10:28:14 AM
If I understand the proposal correctly, private entrepreneurs in Israel (or perhaps just the Israeli government) should apportion tourism revenues to Palestinians 60:40.
But what of the 'revenues' earned by Palestinians from other countries for inciting violence? It is very likely Palestinians would forego some portion of this new 40% revenue stream to continue maximizing 'terrorism' funds, now with the added incentive of minimizing Israeli's 60% portion of tourism funds.
Posted by: King Kull at Oct 29, 2007 10:32:52 AM
Sorry, but this idea is very naive, to say the least. Bruno de Mesquita may be a great political scientist and has written great theory, but I am really amazed at how naively he ignores the most serious problems of this conflict and thinks such a simplistic scheme might in any way work.
The problem, in a nutshell, is that this conflict is NOT about economic issues and income primarily. The most important issues of this conflict can not be resolved by money. The bad economic status of Palestinians is a result of the conflict, and not a cause of it.
The real root of this conflict is that Israel has been dominating the lives of millions of Palestinians for decades and oppressing them. It won't allow them to have their own state, and has built settlements over their land, stolen their resources and oppressed them whenever they refused this.
Whether you pay Palestinians or not, this will not remove the half-million Israeli settlers who make the life of Palestinians impossible, will not allow the Palestinians to have a sovereign continuous state on which they can live like normal humans, and will not remove the segregated racist road network that tears the West Bank apart.
These are all fundamental problems that make life for Palestinians impossible, and make their independence and livelihood impossible. These things need to be removed for the Palestinians to have any semblance of normalcy. To suggest payment as a solution is insultingly stupi.
This is the equivalent of offering Martin Luther King and southern blacks money to stop protesting segregation to allow there to be peace. All while ignoring the segregation, persecution and racism in which blacks live.
If you want to solve the conflict, work to end the oppression of Palestinians by Israelis. Once that happens you will have peace. The rest is just nonsense.
Posted by: saifedean at Oct 29, 2007 11:04:21 AM
Like some others, I'm perplexed by how this 60/40 ratio could be maintained and distributed. Maybe there is an obvious solution I'm missing.
The best that I can come up with is a sort of tourist debit card, where of every Israeli new Sheqel deposited .60 could only be spent on Israeli businesses and .40 on Palestinian business.
This seems an ungainly solution and would have huge associated costs.
Posted by: theblackbirdisinvolved at Oct 29, 2007 11:19:56 AM
Person:
Do you actually believe that all economists believe that the Coase Theorem works always, everywhere, all the time? If you do, you are deluded. Most economists understand the conditions that limit the effectiveness of the theorem.
Posted by: bartman at Oct 29, 2007 11:39:14 AM
It is my belief that the Israrli-Palestinian conflict will never really be solved until one group eliminates the other. I think the whole thing has gone too far to be peaceably worked out. However this de Mesquita guy has an excellent suggestion that has almost made me revise my opinion. If it were not for religious fanaticism on both of the sides then I think that this would be the way to solve the friction in the Middle East. But religion is the greatest polarizer and I think that it will prevent any of the problems either side has from being solved. But this idea is the most original one I have ever heard and it certainly has a good chance. The U.N. should get on that.
Posted by: John Scott at Oct 29, 2007 12:38:36 PM
bartman: Paying nuisances to go away is exactly where economists consider Coase's Theorem most helpful.
Posted by: Person at Oct 29, 2007 12:40:33 PM
John Scott,
You're certainly right that religious fanticism has a huge part to play in the propagation of this conflict, and you pessimissm about a potential solution is certainly not completely unfounded. However, I still maintain hope that there will be a solution, and am certain it could work.
The route to this solution is hardly controversial, but it is the ONLY method that has not been tried. It simply centers on the crazy idea that all humans are humans, and are equal, and deserve equal rights. Following from this, it makes the assumption that once you stop oppressing people, conflict will eventually subside. Sure, there will always be some crazies who are willing to kill for pure hatred, but once there is no fundamental injustice to fight for, those people become as isolated as the V-Tech killer; hardly likely to cause a descent into anarchy, war or violence.
Let's for a second start thinking of Palestinians and Israelis as equal humans, and start working towards a solution that gives them both equal rights, and doesn't allow either of them to suppress the other. That's how a solution was reached in South Africa, the American south, and countless other places.
As long as all of our "creative" solutions, from Shimon Peres to Bueno de Mesquita continue to assume that a solution can be reached while settlements, the occupation, and Israeli domination and control of Palestinian lives are not addressed, we'll never reach a solution.
Slavery went on for hundreds of years, and was one of the most repressive and hateful things humanity has ever done; and yet blacks and whites live together in one society here peacefully, and a black man may well be elected president next year. Israelis and Palestinians can hardly have done to each other more than whites have done to blacks. A proper solution will solve all of this.
Posted by: saifedean at Oct 29, 2007 2:36:42 PM
Well noting else is working so maybe the incentive of money might help. It is naive to claim that it will solve the problem, but it might help. Conflict sometime might seem inevitable…..I recently came across a website about Estonia’s Singing Revolution – http://singingrevolution.com. Estonia was under Russian control as recently as 1991, and now that they are free, there is still tension between the Russians living in Estonia and the native Estonians.
Posted by: Tanvir at Oct 29, 2007 2:43:04 PM
In the words of Golda Meir, "There will be peace when the Arabs love their children more than they hate Israel. Until then, there will be no peace."
Posted by: DMan at Oct 29, 2007 4:08:01 PM
This suggestion makes light of the magnitude of the Arab-Israeli conflict. The entire Middle East is up in flames in part because of this dilemma and there are still people in the world willing to fan the flames motivated (at least subconsciously) by biblical prophecy. It's all very sad.
Posted by: Chairman Mao at Oct 29, 2007 5:24:09 PM
Most Arabs
You asked them all? Or you just know how "that kind thinks?"
Posted by: neil at Oct 29, 2007 8:09:18 PM
Danegeld
Posted by: Gyan at Oct 30, 2007 2:02:47 AM
Bueno de Mesquita's is an interesting and elegant solution, unfortunately it is also a solution to a non-existent problem. The Palestineans do not merely want more money, or more peace; they want the Israelis to get off their land. Which is a perfectly reasonable desire.
Or to put it into economic terms; what does 40% of all revenue mean if you are not allowed to control your own property?
Posted by: Branko Collin at Oct 30, 2007 10:02:45 AM
