Nuclear NonProliferation

1
Nuclear Non-Proliferation

• Moral Hazard and the Nuclear Non-Proliferation
  Treaty (NPT)

2
outline

• History of the NPT.
• The NPT game
• taking the teeth out of NPT
• NPT with enhanced monitoring
• US bias in Iraq
• conclusion

3
history

• 1945 failure of the Baruch plan, which would
  have abolished nuclear weapons. Instead, U.S.
  adopts a policy of strict secrecy.
  
• Dissemination
• 1949 Soviet Union,
• 1952 UK,
• 1960 France,
• 1964 China.

4
The NPT

• Concluded in 1968,
• the treaty
• bans acquisition of nuclear weapons by
  non-nuclear 5
  
• bans transfer of nuclear technology to
  non-parties to the treaty
  
• all nuclear materials must be declared to the
  IAEA and accessible to IAEA inspectors.
  

5
Implementation

• France and China only signed in the 1990s .
• South Africa, India, Pakistan and Israel did not
  sign at first and acquired nuclear weapons.
  
• Only South Africa signed eventually and agreed to
  denuclearize.
  
• Iraq, Iran, North Korea, and Libya signed but
  were at one point or another found in violation
  (Iraq 1991), fell short of their obligations
  (Iran, Libya), or withdrew (NK).

6
Monitoring

• IAEA conducts on-site inspections
• but the results of these inspections are random.
• Assume 300 possible sites in Iraq
• IAEA inspectors can visit 1 site a day
• The inspectors are given 100 days.
• If 1 of these sites is hot, the probability
  that the inspectors find it is 1/3.

7
Moral hazard

• Since compliance is not fully verifiable, the
  disseminator may shirk and not be caught.
  
• To prevent moral hazard, large countries promise
  incentives or threaten sanctions so as to make
  compliance an attractive option.
  
• Such was the point of the NPT treaty.

8
Incentives and sanctions in the NPT

• Incentives for joining
• access to civilian nuclear technology
• along with some U.S. financial assistance
• the nuclear 5 guarantee the non-nuclear members
  against a nuclear attack.
  
• The 5 agree to engage in arms control.
• Sanctions against cheaters
• UN Security Council imposes economic or military
  sanctions.
  

9
The NPT game

• Two players, a sanctioner S (the nuclear-5) and a
  target T.
  
• S wants T to disarm S wins 1 if T disarms, 0
  otherwise.
  
• S offers the NPT treaty with terms
• disarm and receive reward wC, at cost wC to S,
• or proliferate and receive negative payoff wB, at
  cost ? to S (with ? ? 0).
  
• T either signs or rejects the treaty
• if T rejects, it gets reservation payoff 0.
• if T signs, it then decides whether
• to disarm at cost e (with e
• or shirk.

10
NPT game (conted)

• S does not observe Ts action.
• Instead, S observes the result of an on-site
  inspection
  
• Assume 3 possible sites, inspectors can only
  visit one site
  
• if site is hot, inspectors declare T in
  breach,
  
• if site is cold, inspectors declare T in
  compliance.
  
• The inspection result is stochastically related
  to compliance
  
• if T disarms, all 3 sites are cold the
  probability of being declared in breach is
  pe00
  
• if T shirks, 1 site is hot the probability of
  being declared in breach is pe01/3.

11
NPT game (conted)

• if declared in breach, T is sanctioned wB.
• if declared in compliance, T is rewarded wC.
• Payoffs
• if T disarms
• EuT(e0)1wC 0wB -e wC -e,
• EuS(e0)1 -wC.
• If T shirks
• EuT(e0) 2/3wC (1/3)wB,
• EuS(e0) 2/3(0 -wC)1/3(0 -?) -(2/3wC 1/3?).

12
How to elicit non-proliferation?

• Assume S is better off with T disarming, or
  (wC
• S sets the agenda
• S chooses wC and wB so that T chooses to disarm
• (that is, T goes down the sign,disarm equilibrium
  path).

13
NPT Tree with Ts payoffs
shirk
reject
S
T
T
disarm
sign
14
How to constrain T down the sign,disarm path?

• Make disarm at least equal to shirk
• wC -e ? (2/3wC )(1/3)wB
• (incentive constraint)
• Make sign at least equal to reject
• wC -e ? 0
• (participation constraint)
• Solving for both equations simultaneously
  yields
  
• wC e (because S chooses smallest wC)
• wB? -2e (wB is off the e-path and thus left
  semi-indeterminate).
  
• The SP Nash equilibrium is
• ((e, ? -2e)sign,disarm).
• Ts payoff is 0,
• Ss payoff is 1-e.

15
reflections

• The treaty is efficient
• S pays for cost e and no more wC e
• T gets its reservation value 0
• And yet, many countries
• either rejected the treaty in 1968
• or signed it but failed to comply afterward.
• WHY?

16
The cartel broke down.

• France did not sign for 20 years
• Germany sold to Brazil.
• Pakistan sold clandestinely to Libya, Iran, Iraq,
  and North Korea.
  
• Export controls were not updated
• and inspections were not beefed up
• As a result, the threatened sanction was not
  credible, and thus the promised reward
  insufficient.

17
The no-teeth NPT game

• Absence of sanction means wB 0.
• By the incentive constraint
• wC -e (2/3)wC (1/3)wB
• wB 0 ?
• wC 3e and thus wC 3e .
• Ts payoff EuT(e0) 2e, which is a rent.
• Ss payoff EuS(e0)1-3e, requiring e to offer the contract in the first place.
  
• S no longer offers the treaty to targets with a
  high e.

18
Enhancing monitoring

• Recall the latest inspection episode in Iraq.
• Chirac tried to derail U.S. military intervention
  by proposing the doubling of inspectors
  
• still assume 3 possible sites, with inspectors
  now able to visit 2 sites in the case of
  shirking,
  
• pe0 ? P(one of the two visited sites is hote
  0) 2/3,
  
• 1-pe0 ? P(both visited sites are colde 0)
  1/3,
  
• pe0 ? P(one of the two visited sites is hote
  0) 0,
  
• 1-pe0 ? P(both visited sites are colde 0)
  1.
  
• solution is wC e and wB - (1/2)e, greater than
  -2e.
  
• Threatened sanction need not be as steep as it is
  with fewer inspectors.

19
The Tragedy of partial monitoring

• Given that the Bush administration held the prior
  belief that Iraq had WMD with near certainty,
  ...
  
• could the inspection regime have led the
  administration to change their mind?
  
• The American public believed it could,
• the French were hoping it could,
• the Iraqis were doubtful.
• Facts proved the Iraqis right.

20
U.S. Bias

• Assume the U.S. prior belief that Iraq shirked is
  q 9/10.
  
• Assume enhanced monitoring (2 sites visited)
• pe0 2/3, 1-pe0 1/3,
• pe0 0, 1-pe0 1.
• Assume inspectors find nothing U.S. posterior
  belief q P(shirk2 cold)

e0
e0
2 cold 1
2 cold 1/3
1/10
9/10
1 hot 2/3

• Even if Saddam had disarmed, the U.S. would have
  still believed that the odds he hadnt were 3 to
  1.
  
• Only a quasi-perfect monitoring regime (1-pe0 ?
  0) could have made a difference.

21
The clouded future of the NPT

• 1999 U.S. Senate refused to ratify the
  Comprehensive Nuclear Test Ban Treaty.
  
• 2002 U.S. withdrew from the 1972 Antiballistic
  Missile Treaty.
  
• 2002 new U.S. nuclear preemption doctrine
• US named seven nations that it would consider
  striking first with nuclear weapons
  
• 2003 North Korea withdrew from NPT and built
  several nuclear weapons.