Masteroppgave i statsvitenskap, Institutt for statsvitenskap, Universitetet i Oslo

The Brazil-Norway Amazon agreement: A game-theoretic analysis

William Høie Vår 2020 Antall ord: 23 578

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Abstract Using game theory, this thesis aims to map the conditions (if any) under which the

Amazon agreement between Norway and Brazil might be made self-enforcing. Modelling the

agreement as a repeated Prisoner’s Dilemma, it first shows how the two countries have

cooperated based on a strategy similar to Penance. It then analyses President Bolsonaro’s

decision to defect in 2019 and, drawing on strengths and weaknesses of Penance, identify

factors that might have undermined the agreement. I argue that the main reason why Brazil

defected is that the election of President Bolsonaro represent a change in Brazilian

preferences entailing that they now value their sovereignty over the Amazon higher than

Norway’s financial transfers. This thesis ends by considering various approaches Norway

might take in order to restore cooperation. I also discuss possible measures that could have

been incorporated into the agreement from the beginning to avoid defections.

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Preface I thank everyone who has contributed to the realisation of this thesis. I give special

thanks to my supervisor Jon Hovi for his advice and feedback.

I also thank Vedis Vik from the Norwegian Climate and Forest initiative who have

helped with information and knowledge. In addition, I extend thanks to Erlend Andre T.

Hermansen and Solveig Aamodt who provided background information.

Thanks also to my family, who served as moral support to get me through a sometimes

very stressful endeavour.

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Table of content Abstract .................................................................................................................................................. 1

Preface .................................................................................................................................................... 2

Overview of tables and figures ............................................................................................................. 5

1.0 Introduction ..................................................................................................................................... 6

1.1 Background .................................................................................................................................. 6

1.2 Literature review ......................................................................................................................... 7

1.3 Research Question ....................................................................................................................... 9

1.4 Research Design ......................................................................................................................... 10

1.5 Organisation of thesis ................................................................................................................ 10

2.0 Background .................................................................................................................................... 12

2.1 Introduction ............................................................................................................................... 12

2.2 Why the rainforest? ................................................................................................................... 12

2.3 Entering cooperation ................................................................................................................. 13

2.3.1 Brazil.................................................................................................................................... 14

2.3.2 Norway ................................................................................................................................ 14

2.4 Results of NICFI and REDD+ .................................................................................................. 15

2.5 The advent of Bolsonaro ........................................................................................................... 18

2.6 Conclusion .................................................................................................................................. 20

3.0 Theory: Repeated games ............................................................................................................... 21

3.1 Introduction ............................................................................................................................... 21

3.2 The basics of repeated games ................................................................................................... 21

3.3 The base game ............................................................................................................................ 22

3.4 Strategies .................................................................................................................................... 25

3.4.1 Grim trigger ........................................................................................................................ 26

3.4.2 Tit for tat ............................................................................................................................. 26

3.4.3 Penance ................................................................................................................................ 28

3.4.4 Equilibria ............................................................................................................................ 30

3.5 Conclusion .................................................................................................................................. 31

4.0 Strategy: Norway ........................................................................................................................... 32

4.1 Introduction ............................................................................................................................... 32

4.2 Theoretical argument ................................................................................................................ 32

4.3 Empirical argument .................................................................................................................. 34

4.4 Conclusion .................................................................................................................................. 36

5.0 Penance: A strategy in play .......................................................................................................... 37

5.1 Introduction ............................................................................................................................... 37

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5.2 Framework ................................................................................................................................. 37

5.3 What is a successful strategy .................................................................................................... 37

5.4 Played against….. ...................................................................................................................... 38

5.4.1 Always cooperate and always defect ................................................................................. 38

5.4.2 Grim trigger ........................................................................................................................ 40

5.4.3 Tit for Tat ............................................................................................................................ 41

5.4.4 Itself ..................................................................................................................................... 43

5.5 Conclusion .................................................................................................................................. 44

6. Why Brazil defected ........................................................................................................................ 46

6.1 Introduction ............................................................................................................................... 46

6.2 The defection .............................................................................................................................. 46

6.3 Change in w ................................................................................................................................ 47

6.4 Relative gains ............................................................................................................................. 49

6.5 Change of strategy ..................................................................................................................... 51

6.6 Change in preferences ............................................................................................................... 52

6.7 Conclusion .................................................................................................................................. 54

7.0 Response to Brazil’s defection ...................................................................................................... 55

7.1 Introduction ............................................................................................................................... 55

7.2 Norway-Brazil: Can cooperation be restored? ....................................................................... 55

7.2.1 Mediation ............................................................................................................................ 55

7.2.2 Issue linkage ........................................................................................................................ 57

7.2.3 Sanctions .............................................................................................................................. 58

7.2.4 Await restoration of the previous equilibrium ................................................................. 60

7.2.5 Discussion ............................................................................................................................ 61

7.3 How might parties handle future preference change ............................................................. 63

7.4 Conclusion .................................................................................................................................. 68

8.0 Summary and main findings ........................................................................................................ 70

8.1 Summary .................................................................................................................................... 70

8.2 Main findings ............................................................................................................................. 71

Bibliography ........................................................................................................................................ 73

Attachments ......................................................................................................................................... 79

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Overview of tables and figures

• Table 1.1, p. 8

• Figure 2.4.1, p. 16

• Figure 2.4.2, p. 18

• Table 3.1, p. 23

• Table 3.2, p. 25

• Table 3.2, p. 31

• Figure 5.4.1, p. 40

• Figure 5.4.2, p. 41

• Figure 5.4.3 p. 42

• Figure 5.4.4 p. 42

• Figure 5.4.5 p. 43

• Table 6.1 p. 49

• Table 6.2 p. 53

• Table 7.1 p. 58

• Figure 7.1 p. 59

• Figure 7.2 p. 67

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1.0 Introduction

1.1 Background

In this thesis I study the agreement between Norway and Brazil on fighting

deforestation in the Amazon rainforest.

In 2008 Norway and Brazil entered into an agreement about cooperation on the

preservation of the Amazon rainforest. Norway promised to contribute 1 billion USD to the

Amazon Fund up to 2015 if Brazil managed to reduce the deforestation of the Amazon

rainforest. During the 2009 UN climate meeting in Copenhagen, Brazil promised to reduce

deforestation by as much as 85% by 2020 compared to the average deforestation during the

1996-2005 period. During the 2015 climate meeting in Paris the Norwegians and the

Brazilians announced that they would continue their cooperation until at least 2020. In 2015,

Norway also transferred the last of the 1 billion USD promised in 2008.

The agreement is often referred to as a success. During the period 2008-2017, Brazil

reduced the deforestation by 65% compared to the average of the 1996-2005 period.

According to the Norwegian government, the reduction in deforestation in the Amazon

probably stands for the single biggest environmental benefit in the world. They also

emphasize that, according to the UN, Amazon deforestation makes up 11% of global CO2

emissions.

When the agreement was made, the Brazilian Worker’s Party was in government.

Then president Luiz Inácio Lula da Silva promised to reduce deforestation when he came into

office in 2003, and during the 3 first years of the Lula presidency deforestation declined. The

Brazilian Worker’s Party was committed to the fight against deforestation but admitted it

would not be possible without outside help. Protection of the rainforest is one of the single

most important climate efforts in this world, and it is imperative that agreements that lead to

its survival are kept and enforced.

The stance of the Brazilian government changed drastically when President Jair

Bolsonaro was elected in 2018. A year later, Bolsonaro told the world that he considered it to

be a misconception that the Amazon was a part of humanity’s common legacy, and that the

rainforest could be described as the lungs of the world. Bolsonaro considers the Amazon the

property of Brazil, and Brazil alone.

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Bolsonaro has reneged on Brazil’s earlier promises in concerning its rainforest

conservation policy. This has resulted in growing endangering of the Amazon rainforest.

Bolsonaro’s behaviour is not only threatening a forest might constitute a requirement for

human life on this planet but has also strongly diminished Brazil's international standing. This

policy shift has also damaged Brazil’s economic outlook with several EU states. For example,

French president Macron has threatened to veto the EU-Mercosur trade deal.

After several years of reduced deforestation in the Amazon, the trend has now turned

more and more of the Amazon is lost every year. Previously, a successful attempt to combat

deforestation has been the agreement between a collaboration of nations, with Norway as the

main contributor, and Brazil. Today, the payments this agreement supplied to Brazil have

ceased after the increase in deforestation, in large part due to forest fires that many blames on

the Bolsonaro government’s policies, and a unilateral decision by Brazil to change the

governing structure of the Amazon fund. Norwegian authorities have taken as these events a

Brazilian defection. In 2019, Norway suspended the transfer funds to Brazil. The Brazilian

government has also threatened to disband the entire Amazon fund if the other parties do not

grant the Brazilian central authorities’ greater control over the fund. So far, Norway has

rejected these demands. However, the Norwegian government has entered into a dialog with

the Brazilians, hoping to avoid a direct conflict and the disbanding of the fund.

1.2 Literature review

Many international environmental problems are derived from a tragedy of the

commons scenario. A tragedy of the commons occurs when interdependent actor’s cause a

sub-optimal aggregate outcome by maximising individual benefits (Badie, Berg-Schlosser,

Morlino, 2011). The concept was first introduced by Garrett Hardin in a 1968 article

considering the example of a pasture open to all. In the pasture everyone has incentive to

bring in an additional animal as this will increase the herdsman’s own benefit, while the cost

is shared by all the herdsmen using the pasture. The result is that the pasture suffers

overgrazing and so everyone ends with a poor outcome, losing their animals to starvation as

there is not enough grass to go around(Hardin, 1968).

In the case of international environmental cooperation, it’s clear that every nation has

incentives to increase its usage of fossil fuels and resources to gain economic benefit as a

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small increase in one nations usage will not be the end of the world. However, when every

nation does so it might literally mean the end of the world.

In game theory the tragedy of the commons was first modelled through what is called

the prisoner's dilemma (PD). The PD game was first framed by Merrill Flood and Melvin

Dresher in 1950, before it was formalized by Albert W. Tucker (Brown, McLean, McMillan.,

2018). The standard PD example is two prisoners who are separately given the opportunity to

tattle at each other. If one tattle and one keep silent the one who tattles will go free while the

one who keep silent will get a very

long prison sentence. If both tattle

they will both be looked away but

with a light sentence reduction, if

both keep silent they will only be

locked up for a short while. If we

call no sentence T, short sentence R,

long sentence with reduction P, and long sentence S, the prisoners’ preferences will be T > R

> P > S(Brown, McLean, McMillan, 2018; see table 1.1). Both prisoners individually have an

incentive to tattle no matter what the other prisoner does. Hence, the only Nash equilibrium is

(P,P), a sub-optimal outcome. However, if both keep quiet both prisoners achieve the pareto-

optimal result (R,R).

The tragedy of the commons problem might be solved from the individual level all the

way to the global level, and many researches have contributed to understanding it. Still, there

is no obvious recipe for making the prisoners cooperate in a one-shot. This changes when the

game is infinitely repeated. Axelrod (1981) is one of many who have helped us move our

understanding of long-term cooperation forward. Using computer tournaments and

simulations, Axelrod discovered that the most viable strategies were cooperative. Rather than

exploitive. In particular, he showed that overcoming the PD cooperation problem is possible

in a repeated game by using strategies that are cooperative, repercussive, forgiving a clear. A

cooperative strategy is one that when choosing between cooperation and defection, keeping

quiet or tattling in the standard PD example, cooperates the first turn and never being the first

to defect. A repercussive strategy is one that reacts to the other players choices and punishes

the opposing player for defecting through itself defecting giving the players a sub-optimal

outcome worse than both cooperating. A forgiving strategy is one that after a plyer has

defected but then cooperates again will also return to cooperating ending any punishment.

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The final hallmark Axelrod discovered was that a successful strategy consisted of a pattern

easily understood by the opponent, being clear.

The Amazon rainforest can be linked with Hardin’s pasture.. In its simplest form

climate change mitigation is a PD (Wood, 2011). A game-theoretical approach can help us

understand participation and compliance in international agreements, the role of coalitions,

and the role of conditionality when bargaining over emission reductions(Wood, 2011).

Concerning the issue of Bolsonaro’s defection, there is still a lack of peer reviewed

articles as he was elected in 2018 and took office in early 2019. This thesis must therefore

rely on current sources such as media reports and official statements. In addition, I have

interviewed the officials responsible for the agreement in Norway.

1.3 Research Question

The overarching research question of this thesis is:

“What are the conditions (if any) under which the Amazon agreement might be made

self-enforcing?”

This question lies at the root of the problems of this particular case of a country

reneging on a previous commitment, that of reduction in deforestation, part of an international

agreement. It also goes to the heart of a greater question of how to achieve long-term stable

cooperation concerning climate change and nature conservation. It is my hope that this thesis

can contribute somewhat to this greater debate as well, despite being primarily focused on the

Amazon.

To build game theoretic models and analyse them, some other questions must be

answered in order to able answering the overarching research question. These questions act as

a guide through the case study of the Brazilian and Norwegian Amazon agreement. Why was

the agreement entered into to begin with?

● Why was the agreement entered into to begin with?

● What were the two parties’ interests at the time, and what made them believe that the

agreement would be upheld by both parties?

● Why was the agreement broken?

● Could the agreement be renegotiated so that both parties would keep it?

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● How could an agreement of this kind be designed to make it self-enforcing and avoid

defection?.

1.4 Research Design

This thesis focuses on cooperation between Norway and Brazil. Nevertheless, there

are other parties and contributors to the Amazon fund, like Germany. The reason I choose to

focus primarily on Norway and Brazil is because Norway as by far the largest contributor and

Brazil as the recipient country are the most central countries which without the agreement

could not exist. As already mentioned, thesis will utilize game theory to seek a comprehensive

understanding of why Brazil has defected, and whether cooperation can be restored between

the two nations. I will use a repeated-game framework in which I assume that each period

lasts one year. This assumption reflects the fact that the agreement concerned commits

Norway to make yearly payments, depending on Brazil’s achievement s in combatting

deforestation through the previous 12 months. I use a repeated game with a PD base game.

I then discuss strategies aimed at establishing self-enforcing agreements within the

framework of a repeated PD game. I argue that the agreement has been self-enforcing through

the parties using a strategy often referred to as Penance and show how this strategy can

underpin and sustain cooperation.

Next, I use the model to explore why Brazil defected. Having investigated several

possible culprits for the defection, I argue that the defection was caused by a change in their

Brazil’s preferences..

I then turn to possible ways to restore cooperation. After investigating several possible

options, I argue that a mix of mediation and issue linkage would have the best chance of

success.

Finally, I discuss whether the original agreement could have, in hindsight, been

designed in a way to might have avoided any defections in the first place.

1.5 Organisation of thesis

The structure of the thesis largely follows the questions mentioned in section 1.3. In

chapter 2, provide background information, and explain why the agreement was negotiated in.

In particular, I discuss what motivated the parties. This chapter also begins answering the

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second question of what the parties’ interest were at the time, and what made them that

believe the agreement would be upheld.

Nevertheless, this question will follow us through subsequent chapters as well. In the

following chapter, I explore the concepts of a repeated game and a self-enforcing agreement.

It also established the PD as the base game for the repeated game at time when cooperation

began. I consider three different strategies for accomplishing the mentioned goal of self-

enforcing agreements: Grim Trigger, Tit for Tat, and Penance.

Afterwards in chapter 4, I discuss which of these strategies is the most likely

approximation to the strategy used by the Norwegians to sustain cooperation. This chapter

gives both a theoretically based argument, and an empirically based argument for which

strategy Norway has chosen. I find that Penance is the closest approximate.

The next chapter, chapter 5, concerns itself with how Penance plays versus other strategies

in order to show both the strengths and limitations of this strategy. At the end of this chapter I

believe I have fully presented my idea of why this agreement was created, and what have

made cooperation stable.

Based on the findings of the theoretical limitations of Penance, chapter 6, explore several

possible reasons for why the agreement failed and attempts to deduce the most likely reason

to have caused Brazils defection. I argue that the most likely reason is that the Bolsonaro

government represented a change in Brazilian preferences, this change undermines the

necessary conditions for Penance to enforce cooperation.

Chapter 7 concerns itself with the two remaining questions from section 1.1. Here, I first

discuss different ways to restore cooperation and then I turn to a hypothetical discussion of

whether a different design of the agreement could have prevented Brazil’s defection in the

first place.

Finally, chapter 8 offers a brief summary of my argument, and present the main findings

of the thesis.

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2.0 Background

2.1 Introduction

In this chapter I will attempt to explain the factors that ended with Brazil and Norway

agreeing to enter cooperation in 2008, and together work towards the reduction of

deforestation in the Amazon rainforest. In section 2.2, I will begin with a short explanation of

why the Amazon is considered such an important part of the global ecosystem, and why

tackling deforestation is so important to the global endeavour to reduce 𝐶𝑂2 emissions. In

section 2.3, I will explain the domestic reasons of why Norway and Brazil choose this

cooperation, and how that interplayed with the UN climate negotiations and regimes. In

section 2.4, I will discuss the results of this collaboration, and how the deforestation reduction

effort has worked. In section 2.5, I will discuss how this effort have been reduced due to the

election of Jair Bolsonaro as Brazilian president. Finally, I will conclude in section 2.6.

2.2 Why the rainforest?

Among the rainforests of the world the Amazon is the largest. The Amazon covers 6

000 000 𝑘𝑚2 and makes up about 40% of the landmass of Brazil(Encyclopædia Britannica,

2019). We often hear the Amazon referred to as the lungs of the world, because of its ability

to breathe in and store 𝐶𝑂2 (Amazon Aid Foundation, 2019). Through this process of

photosynthesis, the trees capture 𝐶𝑂2 emissions, mitigating the effect of human made climate

change, and reducing global warming.

However, degradation and deforestation re-release 𝐶𝑂2 back into the atmosphere. 30%

of man-made 𝐶𝑂2emissions come from these two processes, and forests that have been a

victim of these processes store 40% less 𝐶𝑂2 (Amazon Aid Foundation, 2019). The Amazon

is also an important part of the world’s weather system, transpiring water which creates

clouds to move moisture around the world. In addition, it provides local ecological services

and is the home of most of the world’s land-based biodiversity(Amazon Aid Foundation,

2019). Without saving the Amazon and stopping deforestation, reaching any sensible

international climate goal will be close to impossible.

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2.3 Entering cooperation

In 2008, Norway and Brazil entered into an agreement where they promised to work

together to reduce and eliminate deforestation. This agreement was important for several

reasons. Primarily, without greatly reducing and/or eliminating deforestation the world cannot

reach it’s 𝐶𝑂2 emission targets in order to stay within the 1,5℃ or 2℃ global warming

targets. Therefore, the Norwegian-Brazilian cooperation must be seen in the context of the

United Nations Collaborative Programme on Reducing Emissions from Deforestation and

Forest Degradation in Developing Countries(REDD+) which was also launched in 2008.

“ REDD+ creates a financial value for the carbon stored in forests by offering

incentives for developing countries to reduce emissions from forested lands and invest in low-

carbon paths to sustainable development. Developing countries would receive results-based

payments for results-based actions. REDD+ goes beyond simply deforestation and forest

degradation and includes the role of conservation, sustainable management of forests and

enhancement of forest carbon stocks.”(UN-REDD, 2019)

The agreement was created to fulfil the goals of REDD+, and was established through a

memorandum which states its goal as

“to foster partnership between Norway and Brazil on issues of Climate change,

biodiversity and sustainable development. Of particular importance is the establishing of a

comprehensive political dialogue on these issues, and close cooperation regarding the

reduction of greenhouse gas emissions from deforestation and forest degradation, on the

development, application and transfer of clean technology and on sustainable development.”

(Norwegian and Brazilian governments, 2008)

It’s necessary to point out that the Norwegian-Brazilian cooperation is only one

element in the Norwegian government’s international climate and forest initiative(NICFI),

although being the largest part, which is administered through the Norwegian ministry of

climate and environment. The NICFI has 12 different recipients and collaborative partners,

but Brazil had in 2017 received 8 229 480 000 NOK of the 13 488 293 827 NOK the

Norwegian government have disbursed (NORAD, 2017). One could therefore claim that

without Brazil, there would be no NICFI.

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2.3.1 Brazil

In 2003, Luiz Inácio Lula da Silva (henceforth Lula) was elected president of Brazil as

the first left wing candidate in almost four decades. Lula’s workers party was a coalition of

many interests that are often seen as left wing, among others environmentalism (Morton,

2005, p. 14). Still, through Lula’s first few years he was accused for setting the unions

concern of short-term job loss above environmentalist concerns about deforestation. In 2005,

the Brazilian green party quit the government coalition over environmental issues, and it was

at this time the executive director of the Brazilian Greenpeace affiliate, Frank Guggenheim,

said: “This government in environmental issues is much more conservative than former

governments, going back to 1988” (Morton, 2005, p. 14-15)”. Although there were also other

environmental issues, it was quite clear at this time that Lula’s legacy on the environment

would be linked to the rainforest (Morton, 2005, p. 14).

Lula had taken some action on the rainforest, and through his first three years in

government deforestation had been reduced (Foley, 2008). Lula had adopted a policy of

creating several new conservations, but these conservations were dramatically understaffed

and underfunded (Morton, 2005, p. 15). The lack of results and the loss of parliamentary and

popular support explain why Lula in 2006 changed Brazil's stance on including deforestation

in UNFCCC discussions. Lula also issued a plea to the international community saying that of

course the Workers party was committed to the fight against deforestation, but they would not

be successful without more funding (Foley, 2008).

2.3.2 Norway

In 2006 and onward, a combination of rising concern about climate change and

criticism of a passive national climate policy spurred the Norwegian government into action.

With the IPCC’s fourth assessment report climate change became one of the most important

questions on the international arena, and with the presentation of the finished work of a

government commission presenting strategies for reduction in domestic 𝐶𝑂2 emissions made

it impossible to remain passive (Hermansen, Kasa, 2014, p. 4). With signals coming that

Brazil would not continue their opposition to include deforestation in UNFCCC discussions,

and an increase in media attention around the link between deforestation and climate change,

a window of opportunity was opened for the Norwegian government (Hermansen & Kasa,

2014, p. 4-5).

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As the government’s position on climate change was condemned as weak by the

opposition, it started turning to rainforest conservation as its flagship climate policy. When

two of the largest environmental NGOs in Norway, the Rainforest Fund Norway(RFN) and

the Norwegian society for the conservation of nature(FEN), endorsed the idea that Norway

should cover 10% of the cost of REDD+, the government embraced the idea. The next year

Norway's contribution to REDD+ became 50% of what the NGOs had suggested, and this led

into the establishment of NICFI through enthusiastic negotiations with the opposition

(Hermansen & Kasa, 2014, p. 6).

Critics of the NICFI have pointed out that it’s cross-party support stems from the

possibility to use it as political coverage to avoid painful domestic cuts, especially in the oil

sector, which the Norwegian economy heavily relies on. The paradox of the Norwegian

government using large amounts of rainforest conservation in Brazil while the Norwegian

petroleum fund invested in environmentally dubious projects in Peru was also pointed out at

the time in left-leaning media (Hermansen & Kasa, 2014, p. 10).

The NICFI exists largely due to the RFN and FEN. In 2006, when there was a large

gap between the reality and expectation of Norway's climate policy, the two NGOs used the

opportunity to push for an extremely ambitious project (Hermansen & Kasa, 2014, p. 21). The

NGOs were aided by a change on the international arena, whereby the environmental issue

became more important, and by Brazil changing its stand on deforestation as an international

issue (Hermansen & Kasa, 2014, p. 4). Through the years, NICFI has increased in popularity,

not only for its climate effect, but also because it provides an excuse to avoiding domestic

emission reductions (Hermansen & Kasa, 2014, p. 22).

2.4 Results of NICFI and REDD+

The efforts of NICFI and REDD+ in Brazil have been largely successful. The

principles of the Norwegian-Brazilian cooperation are actually quite simple. Through a time

period referred to as a forest year, 1st of August until 31st of July, Brazil uses two satellite

systems to measure deforestation in the Amazon and use that data to create something called a

deforestation number (Norwegian government, 2018). These two systems are known as

DETER and PRODES. DETER gives reports every other week, creating a kind of real-time

rainforest watch. Which gives Brazilian authorities the ability to act against illegal

deforestation with an accuracy previously unheard off. DETER can detect any lumber field of

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0.25𝑘𝑚2or larger (Norwegian government, 2018). PRODES, on the other hand, can detect

any lumber field of 0.065𝑘𝑚2or larger. Still, the data from PRODES takes a longer time to

analyse than those from DETER, so while DETER operates in real time PRODES is used for

more detailed yearly reports (Norwegian government, 2018). When the yearly report is ready,

that year’s deforestation number is compared to a benchmark of a decadal average. Then the

difference between the decadal average and the yearly deforestation is used together with a

conservative estimate for deforestation 𝐶𝑂2 emissions to calculate how much 𝐶𝑂2 is let into

the atmosphere compared to what would be let out with the average. Norway then pay 5 USD

for every metric ton 𝐶𝑂2 saved into the Amazon fund (Norwegian government, 2018).

The result has been that, compared to the time period 1996-2005, the yearly average

deforestation is down by 65% in the period 2008-2017 (Norwegian government, 2018). The

Brazilians have achieved this reduction by using several different tools. In 2004, the

Brazilian government created an action plan against deforestation. The real time surveillance

of DETER, together with strengthened environmental police, partially funded by the Amazon

fund, has made crackdown on illegal logging much more viable. Through the help of foreign

funding the Brazilians have managed to increase their conservation efforts by creating more

and better protected conservations (Norwegian government, 2018). Today, the Amazon fund

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supports 103 different projects, provides 720 million USD in support, and have distributed

484 million USD (Amazon fund, 2019; Garcia, van der Ree, Boas & Gramkow, 2019, p.113).

All in all, the fund has received 1 288 253 378 USD of which 1 212 378 452 USD have come

from Norway (Amazon fund, 2019). The fund has through its activities befitted 162 000

people through sustainable production activities, carried out 687 environmental enforcement

missions, support 65 % of all indigenous Amazonian land and 190 protected areas in the legal

Amazon area. The fund has also helped project that together have produced 465 scientific or

informative publications. There are 746 000 rural properties registered in CAR. (Garcia van

der Ree, Boas & Gramkow, 2019, p.113).

“The Rural Environmental Registry (CAR) consists of an electronic registry of

georeferenced spatial information of rural properties, with delimitation of permanent

preservation areas (APP), legal reserves, remnants of native vegetation, consolidated rural

areas and social areas of public utility…CAR registration enables the environmental and

economic planning of the use and occupation of rural properties, and it represents a

fundamental step in ensuring environmental regularity” (Amazon fund, 2019)

Through these efforts the Amazon fund has contributed to strengthen 95 different

native people’s territories, protect over 100 rainforest conservations, which are the main

barriers against deforestation (Garcia, van der Ree, Boas & Gramkow, 2019, p.165),

supported more than 50 environmental agencies that patrol the forest and put out forest fires,

aided in holding to account the actual owners of the forest and the perpetrators of illegal

deforestation, and strengthen the Brazilian environmental police (Ibamas) (Norwegian

government, 2018). Most of the projects evaluated show deforestation reduction in the

implementation areas (Garcia, van der Ree, Boas & Gramkow, 2019, p.165)

The fund has worked with different partners. Among others local governments like

counties and states, universities and third sector entities (Garcia, van der Ree, Boas &

Gramkow, 2019, p.115). The Amazon fund have had a proven ability to different actors

together and promote sustainable development while reducing deforestation. Cooperating

with the Brazilian development bank (BNDES) has given the fund a strong professional

capacity, while the fund has enabled BNDES to better understand and developed its

operations in sustainable development. The funds excellent transparency practises have

become a milestone for BNDES projects. The fund has played a vital role in the

implementation and success of CAR (Garcia, van der Ree, Boas & Gramkow, 2019, p.163-

164).

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2.5 The advent of Bolsonaro

The first of January 2011 Lula left office. He was succeeded by his former chief of

staff and party colleague Dilma Vana Rousseff (henceforth Rousseff). As the political heir of

Lula, Rousseff continued his policies, also his policies concerning the rainforest. On the 12th

of May 2016, Rousseff was suspended from office, awaiting the result of her impeachment

and vice president Michel Miguel Elias Temer (henceforth Temer), started to serve as acting

president. On the 31st of August 2016 Rousseff was impeached for breaking budgetary laws

and removed from office, while Temer was sworn in as president. Temer hailed from the

Centrist Brazilian democratic movement party (MDB) and so the 13-year long monopoly on

the presidency of the Workers party was broken. Temer served as president until the 2018

elections, where he did not run for re-election.

After a controversial and brutal campaign, a new president was elected in 2018. Jair

Messias Bolsonaro (henceforth Bolsonaro) from the social liberal party(PSL), a party he had

joined that very year and cut ties with in 2019, was elected. Before joining the PSL and

becoming its presidential candidate, Bolsonaro had been a member of 8 other parties. When

Bolsonaro was elected, everything changed for the rainforest. In Bolsonaro, the Brazilians

have chosen a president that puts short-term economic growth over the environment and the

19

Amazon (Aamodt & Hermansen, 2019). Through 2019, the Amazon has been engulfed by

fires on a catastrophic level, increasing the annual loss of forest from 7900𝑘𝑚2in 2018 to

9762𝑘𝑚2in 2019(Butler, 2020). Although terrible, this development was strangely enough

somewhat expected. There is usually a spike in deforestation when one administration exits

and a new one takes over, as Brazil has many civil servants that are replaced with a change in

administration (Rodrigues-Filho, Verburg, Bursztyn, Lindoso, Debortoli, Vilhena , 2014).

The problem with the Bolsonaro administration is that while new administrations usually take

action to reduce deforestation again, the Bolsonaro government signals that no such action

will be taken. Actually, the policies signalled by Bolsonaro would have a greater chance of

increasing deforestation than reducing it, and Bolsonaro has the support of a majority in

Congress (Aamodt & Hermansen, 2019).

Bolsonaro have already implemented several policies that will be detrimental to the

efforts of reducing deforestation and plan to introduce other policies in the future. Among

these policies one of the worst have been the slashing of the budget of the Ibamas making it

close to impossible to stop and punish those who participate in illegal deforestation (Aamodt

& Hermansen, 2019). In the Amazon fund he dissolved the technical committee, who

calculate annual deforestation, and the Amazon Fund Guiding committee (COFA) (Aamodt &

Hermansen, 2019). COFA has been attributed with bringing together actors from federal and

state governments, the business sector, the Third Sector and academia. The COFA enabled

broad participation in discussions about the Fund’s strategies and built relationships of trust

between the many actors, who were previously distant, which have been essential for the

success of the funds work (Garcia, van der Ree, Boas & Gramkow, 2019, p.163). The head of

the Brazilian institute for space research, which among other things run DETER and

PRODES, have been fired, and the Bolsonaro have spoken about wanting to privatize it

(Aamodt & Hermansen, 2019). Bolsonaro have been hostile towards native groups and have

changed key decisions in the government to reduce the protection of their rights. Which is

detrimental to the rainforest as the native Amazonians are some of the forest’s strongest

protectors. Bolsonaro have also dissolved the parts of the environment and foreign ministries

that work on climate related issues, and his cabinet members are outspoken supporters of

deforestation in favour of industries. The government is also considering reorganising and

slashing its support to different NGOs (Aamodt & Hermansen, 2019).

20

2.6 Conclusion

The Amazon Rainforest is essential to our world, and if we are to have any chance of

reaching our goals in reducing 𝐶𝑂2emissions we need to reduce deforestation. This fact has

amade Amazon deforestation reduction a global climate priority.

In section 2.3, it was shown how domestic pressure on the national governments made

it necessary for both Brazil and Norway to adopt ambitious environmental policy positions.

The focus of Brazilian environmental groups on Rainforest deforestation made it impossible

for the Lula government not to increase its effort in this area and change their stance on

including deforestation in UNFCCC discussions, and a lack of founding made them seek out

international partners. Meanwhile, a combination of wanting the most cost-efficient climate

policy, and avoiding cuts in national oil production, made the Norwegian government also

turn to the global scene. The combination and co-timing of these domestic pressures, and

overlapping ambitions, opened a window of opportunity for the two nations which they

seized.

In section 2.4, we saw how the collaboration between Norway and Brazil have by

most measurements been a success. Using a combination of cooperation with civil society and

native tribes, modern satellite technology and government intervention annual deforestation

went down, and Brazil slashed it’s CO2 emissions.

The election of Bolsonaro have turned this development around. From 2018 to 2019

deforestation went up, and there is nothing that points to the Bolsonaro government doing

anything to change this fact. There is on the other hand many things pointing towards the

opposite, that by design or not the Bolsonaro government's policy will increase deforestation.

The Norwegian-Brazilian cooperation have been a huge success in the struggle against

climate change, but this successful collaboration between nations now look to be about to

collapse.

21

3.0 Theory: Repeated games

3.1 Introduction

To help understand the interaction between Norway and Brazil, I use a repeated game

framework. In section 3.2, I present the underpinning principles of a repeated game. While in

section 3.3, I show how the interaction between Norway and Brazil can be modelled through

what is called a repeated prisoner’s dilemma, or PD, game. In section 3.4, I will discuss three

of the most used strategies in game theoretical analysis of repeated PD games. The 3

strategies that will be discussed in this section is the Grim trigger, Tit for Tat, and Penance.

Finally, in section 3.5 I will summarize and conclude.

3.2 The basics of repeated games

When creating a game-theoretical model, one important aspect is that of time,

including whether the game is a one-shot game or a repeated game. Repeated games are

important, because real-world players often play a variant of the same game over longer

periods of time. Thus, they can react to each other’s choices. In repeated games, the strategies

are more complicated than the strategies in a one-shot game. Because the agreement between

Norway and Brazil is a long-term agreement and not a one-off transaction it’s only natural

that in this thesis repeated games will be in focus. A repeated game consists of a base game,

which is a game that is repeated either a finite or an infinite number of times (Maschler,

Solan, & Zamir, 2013, p. 519)

When constructing a repeated game, there are three elements of importance. One is the

base game. The base game consists of steps 1 through 6 in Hovi’s (2008, p.27) recipe for

game-theoretical analysis. The second element is that of time. Is the game finitely or infinitely

repeated? If the game is finitely repeated, how many times will the players play the game?

The third element is how the players value current pay-off relative to future pay-off

(Maschler, Solan, Zamir, 2013, p. 520). This valuation is shown in the discount factor. The

discount factor, w, equals the probability that there will be at least one more round, 𝛿, divided

by (1 + the discount rate, r), formulaic this can be shown as 𝑤 =𝛿

1+𝑟.

To analyse an infinitely repeated game an interesting question is whether it might be

possible to design a self-enforcing agreement. According to Grundig, Hovi, Underdal, and

Aakre (2012) a self-enforcing agreement fulfils three key criteria:

22

1. No party benefits from violating the agreement, given that no other party does so.

2. No other party benefits from withdrawing from the agreement, seen that no other party

does so .

3. 1 and 2 are achieved without the interference of an external force.

3.3 The base game

In order to illustrate the different strategies to achieve a self-enforcing agreement we

return to the recipe for game-theoretical analysis by Hovi (2009, p.27) in order to create a

base game for when Norway and Brazil first entered into the agreement.

1. Who are the players?

The players in this case would be the Brazilian and the Norwegian

governments.

2. What actions can they perform?

The actions they can perform will differ somewhat between the two states.

Brazil must either fight deforestation or do nothing. The Norwegian government must

pay or withhold the agreed payment.

3. In what order do they act?

From the information presented in chapter 2 we can say that Brazil and

Norway act simultaneous. Brazil decide whether to allocate resources and energy to

the fight against deforestation in the coming year at about the same time as Norway

decides whether to pay Brazil for the previous year’s results.

4. What information do the players have to act on?

The players have perfect information. Perfect information in game theory

means that both players know what the other player and themselves have chosen in all

previous periods. The players are assigned to have complete information in that they

know each other's preferences and strategy set (the different actions a player can take).

Still, the argument that this game contains incomplete information can be made as we

know the preferences of Brazil seemingly change at some point, and neither nation

knew in advance that Brazil's preference would change. In such a scenario there is a

strong argument to be made that the players do not fully know each other’s

preferences, therefore not possessing complete information.

5. What results do the different combinations of actions entail?

23

The easiest way of presenting this is in a matrix.

The matrix shown in table 3.1 allows us to easily track the outcome of any

combination of choices. In the agreement between Norway and Brazil Norway is

supposed for to pay when Brazil fights deforestation, I will therefore refer to this

combination of actions as cooperation. Actions from one or both players that breaks

with this agreement will be referred to as defection. This mean in any combination of

actions where Norway does not pay or Brazil does not fight deforestation, or both.

6. What preferences do the players have concerning the different options?

Each combination of actions gives the players different payoffs. The payoff

from defecting while the other player cooperates will be denominated as T, the payoff

when both players cooperate will be R, the payoff of both players defecting is P, and

the payoff from cooperating while the other player defects is S.

These payoffs have different values for the players, and the players valuation

of the payoff determines which outcome the player prefer. For this thesis I will use

the numerical payoffs in a valuation of 0,1,3, and 5, were the players consider 5 the

most valuable payoff, and 0 the least valuable payoff. This valuation is utilized by

Axelrod in his article and book, The Evolution of Cooperation, (1984). For the

different players this valuation will look like this:

For Norway T > R > P > S and assigned the values:

- T = Deforestation actively reduced & money not paid = 5

- R = Deforestation actively reduced & money paid = 3

- P = Deforestation not actively reduced & money not paid = 1

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- S = Deforestation not actively reduced & money paid = 0

The reason why Norway's preferences look like this is simple. From chapter 2 we

know that Norway wants the most effective reduction in climate gas emissions that

their financial resources can create. Therefore, Norway's primary goal in this context

is the preservation of the Amazon rainforest. Consequently, Norway’s preferences

aligned closest to the two outcomes where the Brazilian government takes an active

role in the fight against deforestation. Still, the desire to receive the greatest payoff

from the resources spent result in Norway preferring to achieve their desired goal for

free rather than to pay for it. In a similar manner, if Brazil where to choose not to

combat deforestation, robbing Norway of the possibility to achieve their goal, Norway

would prefer not to pay and saving the financial resources for another endeavour.

While for Brazil T > R > P > S at the beginning of cooperation:

- T = Deforestation not actively reduced & money paid = 5

- R = Deforestation actively reduced & money paid = 3

- P = Deforestation not actively reduced & money not paid = 1

- S = Deforestation actively reduced & money not paid = 0

The stated goal of the Brazilian government at the beginning of cooperation was to

combat and reduce deforestation in the Amazon rainforest. Still, a commitment to

fighting deforestation does cost Brazil sovereignty over the Amazon Rainforest and its

resources. In addition, the financial resources given by Norway could, at least in

periods, probably at least partially be spent to achieve other goals the Brazilian

government. Brazil would therefore prefer payments without strings attached. Still, the

Brazilian government did want to effectively combat deforestation, it is just that

without foreign resources they were unlikely to succeed. Brazil’s second preference is

as a consequence to commit to deforestation reduction and receiving the financial

transfers so that they can achieve this goal. If Norway decides to withhold the transfers

Brazil will prefer to not spend any additional resources on an endeavour they know

they will lose.

Through following the steps supplied by Hovi (2009, p.27) for constructing a game

theoretical analysis. I argue that one can construct the interaction between Norway and Brazil

25

concerning combatting deforestation as a repeated game with a PD game (see table 3.2) as the

base game.

3.4 Strategies

The base game of a repeated game shows us the different ways that one period of that

game can be resolved, but a repeated game transpires over more than one period, therefore a

player must think about what actions can be taken throughout the following periods. When

one thinks about repeated games in such a way one should remember the folk theorem. The

folk theorem says that:

“In an infinitely repeated n-person game with finite action sets at each repetition, any

combinations of actions observed in any finite number of repetitions is the unique outcome of

some sub-game perfect equilibrium given 3 conditions” (Rasmusen, 1990, p. 92)

These three conditions are that the rate of time preference is 0 or positive and

sufficiently small, that the probability of the game ending is 0 or positive and sufficiently

small, and that the set of payoff combinations strictly pareto-dominate the minmax payoff

combinations in the mixed extension of the one shot game is n-dimensional (Rasmusen, 1990,

p.92).

What this means in practise is that in any infinitely repeated game any combination of

actions that is better than the Nash equilibrium be sustained. At any time in an infinite game

one player can be encouraged to punish another player, even if this action is hurtful to the

punishing player, in order to achieve future benefit, as the aggregated payoffs for the

remainder of the infinite game is greater the one period payoff, as long as w is sufficiently

high. (Rasmusen, 1990, p.92).

26

In other words, a self-enforcing agreement is possible in any infinitely repeated

games. To achieve this there, exist a close to infinite number of strategies, but from this point

on this subchapter will be dedicated to exploring three of the most commonly used strategies

to achieve a self-enforcing agreement in game theory. These strategies are Grim Trigger, Tit

for Tat, and Penance.

3.4.1 Grim trigger

Grim trigger, hereafter GT, is a strategy for enforcing an agreement where the players

cooperate until a defection occurs, Thereafter the player defects indefinitely(McGillivray,

Smith, 2000). GT is a self-enforcing agreement according to McGillivray and Smith(2000) if:

𝑤 ≥ (𝑇 − 𝑅)/(𝑇 − 𝑃)

In the case of Norway and Brazil, and using the payoffs above, this means that if they

choose a GT strategy then they should have a self-enforcing agreement if:

𝑤 ≥5 − 3

5 − 1

𝑤 ≥ 0.5

If this condition is satisfied, 𝑤 ≥ 0.5, we should see continued cooperation.

The problem with GT is that if one of the players defects there is absolutely no way

back to cooperation as GT demands defecting indefinitely. This means that if for some reason

either Norway or Brazil were to defect, the entire agreement would be over there and then.

This would probably lead to a huge increase in deforestation, which would cause huge

𝐶𝑂2emissions. An efficient environmental agreement cannot allow this to happen.

3.4.2 Tit for tat

Tit for tat, hereafter TfT, is another strategy for creating a self-enforcing agreement.

To put it in simple terms, TfT instructs the player to cooperate in the first round, and then

simply to do what the other player did in the previous round (Axelrod & Hamilton, 1981).

Since TfT only remembers one round back that means that if 𝑤is high enough TfT has the

power to restore cooperation in almost any situation, except if both players play TfT(Axelrod,

Hamilton, 1981). TfT can sustain lasting cooperation according to Axelrod and

Hamilton(1981) if:

27

1. 𝑤 ≥ (𝑇 − 𝑅)/(𝑇 − 𝑃)

2. 𝑤 ≥ (𝑇 − 𝑅)/(𝑅 − 𝑆)

If the first condition is not met then TfT will most likely descend into lasting defection. If the

second condition is not met if both players are playing TfT they will enter a scenario where

they end up with one player cooperating and the other defecting, and the next period the

previously cooperating player will defect, and the previously defecting player will cooperate.

If w is not sufficiently high to ensure cooperation through the promise of greater future

aggregate payoffs TfT can end up in two sub-optimal interactions. In our scenario with

Norway and Brazil using my numerical illustration we need:

𝑤 > (5 − 3)/(5 − 1)

𝑤 > 0.5

if w > 0.5 does not hold true then the players would consider the one period payoff of

defecting more valuable than future aggregate payoff and both players would go for constant

defection.

On the other hand, if not:

𝑤 > (5 − 3)/(3 − 0)

𝑤 > 0.66

then the two players would enter an alternation between defection and cooperation, with on

player defecting on odd-numbered periods and cooperating on even-numbered periods, and

the other player doing the opposite.

Herein lies the greatest problem with TfT for if the situation of alternating cooperation

and defection or lasting defection comes into occurrence then there is no mechanism that

allows the player to return to cooperation if both players play TfT. So, if either Norway or

Brazil does not value the future sufficiently high then they might end up in lasting defection,

or in alternating between cooperation and defection. Still, if the valuation of the future

exceeds the threshold (⅔ in my numerical illustration) then both conditions are met and TfT

fulfil Grundig, et al,’s(2012) 3 three requirements for a self-enforcing agreement.

28

3.4.3 Penance

Penance specifies that a participating country plays cooperation except if another

participating country has been the sole deviator from Penance by defecting in the previous

period, in which case defect is played(Asheim, Froyn, Hovi, Menz, 2006). In order for

Penance to be a viable strategy for achieving a self-enforcing agreement, two requirements

must be met. The first requirement is the subgame perfection requirement, and the second is

the renegotiation-proofness requirement(Asheim, Froyn, Hovi, Menz, 2006).

If both players cooperated in the previous period (t-1) then both players should have

continued to cooperate in this period (t) achieving a payoff of R. Still, in order to achieve

payoff T one player defects instead. The defecting player returns to Penance in the next period

(t+1), and in order to restore corporation cooperates while the other player defects and ends

with payoff T. After this period (t+2….) both players return to cooperation and returns to

payoff R. If it gives at least the same discounted payoff to return to Penance as it does to

defect, then it is rational to return to Penance(Hovi, 2009, p. 94)

By showing this formulaic the requirement for what the discount factor needs to be in

order to return to penance to be rational becomes much clearer:

(1 + 𝑤)𝑅 ≥ 𝑇 + 𝑤𝑆(Asheim, et al., 2006; Hovi, 2009, p. 94)

which solved for w gives:

𝑅 + 𝑤𝑅 ≥ 𝑇 + 𝑤𝑆

𝑤𝑅 − 𝑤𝑆 ≥ 𝑇 − 𝑅

(𝑤)(𝑅 − 𝑆) ≥ 𝑇 − 𝑅

𝑤 ≥𝑇 − 𝑅

𝑅 − 𝑆

We must also investigate one type of sub-game. This sub-game begins with one player

having defected in the previous period (t-1). The other player will therefore, if it continues to

play Penance, defect in the current period (t). In this situation, it would never be rational for

the other player to break with Penance. The question is whether the player that defected in

period t-1 haves any incentive to defect also in period t. Therefore, for the rest of this

paragraph, I will focus on this player. If the player returns to Penance it will receive payoff S

in period t and payoff R in period t+1. If the player chooses to defect also in period t then the

29

player will receive payoff P in period t and then payoff S in period t+1 to restore cooperation

(Hovi, 2009, p.94-95)

Formulaically, the ratio between the two options must look like this for the player to

return to cooperation in period t:

𝑆 + 𝑤𝑅 ≥ 𝑃 + 𝑤𝑆

Solving for 𝑤 gives us:

𝑤𝑅 − 𝑤𝑆 ≥ 𝑃 − 𝑆

𝑤(𝑅 − 𝑆) ≥ 𝑃 − 𝑆

𝑤 ≥𝑃 − 𝑆

𝑅 − 𝑆

We here find that Penance is subgame perfect equilibrium if:

𝑤 ≥ 𝑚𝑎𝑥 [𝑇−𝑅

𝑅−𝑆,

𝑃−𝑆

𝑅−𝑆] (Hovi, 2009, p.95)

In the case of Norway and Brazil, using the numerical illustration from section 3.3,

this means that Penance is a subgame perfect equilibrium if:

𝑤 ≥ 𝑚𝑎𝑥 [5 − 3

3 − 0,1 − 0

3 − 0]

𝑤 ≥ 𝑚𝑎𝑥[0.66 , 0.33]

𝑤 ≥ 0.66

“The requirement of renegotiation-proofness is satisfied in the present setting if not all

players strictly gain by choosing collectively to restart cooperation at once instead of

implementing the threatened punishment when a deviation has taken place in the previous

period”(Asheim, Froyn, Hovi, Menz, 2006)

Let's assume that one player erratically defects in period t and returns to Penance in

period t+1. The requirements for weak renegotiation proofness demand that the other player is

at least as well off by a return to Penance, as it is by renegotiating the agreement.

If we assume both players continue playing Penance, does not renegotiate, the player

that defected in period t will return to cooperating. Meanwhile the other player that

30

cooperated in period t will defect to deliver the other player its punishment. Afterwards both

players will cooperate in all following periods.

On the other hand, if the players renegotiate the player that did not defect in period t

will cooperate, the opposite of what Penance demand in this situation. In so doing cooperation

might be restored in period t+1 instead of period t+2.

If the player opts for a return to Penance then the player that did not defect in period t

will receive a payoff of T in period t+1. Meanwhile, If the player chooses to renegotiate the

player will receive a payoff of R. In both scenarios both players will receive a payoff of R in

every period after t+1. Therefore, Penance is weakly renegotiation proof if 𝑇 ≥ 𝑅(Hovi, 2009,

p. 89-90), as the result for the player that did not defect in period t is then at least as good of

from continuing with Penance than it would be form renegotiating.

This condition is fulfilled by the assumption in my model, as for Norway and Brazil

T=5 and R=3. 𝑇 ≥ 𝑅 and Penance in this game is weakly renegotiation proof.

3.4.4 Equilibria

All of the strategies GT, TfT, and Penance, are Nash equilibria under certain

circumstances (Hovi, 2009, p. 90).

“In a Nash equilibrium, every person in a group makes the best decision for herself,

based on what she thinks the others will do. And no-one can do better by changing strategy:

every member of the group is doing as well as they possibly can.” (Economist, 2016).

Where they differ is when it comes to whether they are subgame perfect equilibria and

whether they are renegotiation proof.

Concerning TfT, if a player chooses to defect in period t-1 and returns to TfT in period

t (i.e., plays cooperate like the other player did in period t-1) the players will end up in an

eternal sequence of interchanging cooperation and defection for the rest of the game. TfT is

therefore not a subgame perfect equilibrium (Hovi, 2009, p. 88)

GT and Penance are both subgame perfect equilibria under certain circumstances, but

only Penance can be renegotiation proof under certain circumstances(Hovi, 2009, p. 90)

On the issue of GT and renegotiation proofness we can see that is if one player defects

in period t then both players should defect from period t+1 and onwards. While if the players

31

break with GT and return to cooperation then they receive payoff R from period t+1 and

onwards. So, if 𝑅 ≥ 𝑃, then GT is not renegotiation proof, and if 𝑃 ≥ 𝑅 then there would not

have been an agreement to begin with.

In conclusion, of these three strategies, only Penance is a Nash equilibrium, a subgame

perfect equilibrium and a renegotiation proof equilibrium(see table 3.3; Hovi, 2009, p. 90)

3.5 Conclusion

The focus of this chapter has been the achievement of a self-enforcing agreement. We

began by considering how a repeated game is constructed through the repetition of a base

game through more than one period and looking into what constitutes a self-enforcing

agreement. Through constructing an example of a base game concerning the interaction

between Brazil and Norway the combinations and consequences of their different actions was

made clear and put into a system that will allow a greater clarity when studying them. Then

the remainder of the chapter was devoted to different ways of creating a self-enforcing

agreement and their strengths and weaknesses. According to the folk theorem any infinitely

repeated game can sustain any outcome better than the Nash equilibrium, therefore a self-

enforcing agreement should be possible in any infinitely repeated game, provided the discount

factor is high enough. The three most common strategies used by game theorists to study the

creation of such agreements are Grim Trigger, Tit for Tat, and Penance. GT’s strength can

sustain a self-enforcing agreement through the threat of permanent defection if w is only at

0.5, but after defection there is no way back to cooperation. TfT can through reciprocity

sustain a self-enforcing agreement if w is high enough and can find a way back to cooperation

after defection if not both players are utilizing TfT. Penance can sustain a self-enforcing

agreement though the threat of punishment from any defector but is still forgiving enough to

return to cooperation if the defector is willing to take their punishment. Of all these three

strategies only, Penance is a Nash equilibrium, a subgame perfect equilibrium, and a weakly

renegotiation proof equilibrium.

32

4.0 Strategy: Norway

4.1 Introduction

The next step in this thesis is to identify the preferred strategy of Norway. From

chapter 2 we know that Norway’s goal is to reduce deforestation of the rainforest, and we also

know from chapter 2 that Norway entered into an agreement with Brazil, accepting to pay for

Brazil working towards the end of deforestation. In Chapter 3, three different strategies for

creating a self-enforcing agreement were presented. This chapter focuses on which, if any, of

these strategies Norway use to attempt to make this agreement with Brazil self-enforcing.

This chapter puts forward different arguments to point towards which of the strategies; GT,

TfT, and Penance the Norwegian government pursues. Further, I present two different ways

of arguing which strategy is the most rational for Norway to utilize. First, I investigate a

theoretical argument for which strategy would be the best, based on different criteria of

effectiveness. Secondly, I discuss an argument based on empirical evidence found in the

Norwegian government's reaction to the increase in deforestation in the Amazon. Finally, I

pull on both the theoretical and the empirical arguments to conclude on which strategy is the

closest approximate to the Norwegian one, and I explain why I think that the theoretical and

empirical together point towards a strategy strongly resembling Penance.

4.2 Theoretical argument

Assume that w is sufficiently high, so that the GT, TfT, and Penance fulfil the

conditions presented in chapter 3. The Norwegian government should then rationally choose

the strategy that gives the greatest chance of ensuring a continuous self-enforcing agreement.

Given these premises, it’s hard to see in that TfT could be preferable to Penance. TfT and

Penance are both cooperative, reciprocal, and forgiving (Hovi, 2009, p. 90). The main

differences between Penance and TfT is that Penance offers a way back to cooperation even if

both players are following the Penance strategy, while if both players are playing TfT then if

defection occurs there is no way back to cooperation. In addition, Penance is a sub-game

perfect equilibrium and weakly renegotiation proof, on the other hand as shown in chapter 3

TfT is not a subgame perfect equilibrium and therefore cannot be a renegotiation proof

equilibrium. Through these arguments we can see that Penance has more stability supporting

mechanisms and lack one of TfTs greater flaws (Hovi, 2009, p. 91). In other words, for our

purposes Penance is preferable to TfT.

33

This leaves the choice between Penance and GT. While Penance is weakly

renegotiation proof, and GT is not. However, GT has other strengths which Penance lack. The

finality of GT, which in some cases is its greatest weakness, is in some scenarios its greatest

strength. In international politics, an example would be if two allied nations share intelligence

and it just so happens that one of them was selling that intelligence to the other’s enemy. Such

an ally one would no longer share intelligence with ever, and the knowledge of this eternal

loss would be a deterrent against doing such a thing, especially if both nations have other

allies they could build intelligence sharing networks with. In such scenarios of trust-building

relations, GT might be the preferable strategy (Hovi, 2009, p. 91).

In contrast, Penance is preferable if a permanent break with the current collaborator is

simply not possible or extremely costly. This can be the fact between nations that are close

neighbours and share management over important resources such as fisheries. A permanent

break between such nations might lead to a tragedy of the commons concerning their common

resource. In addition, a country does not decide their geographic placement and neighbours

will always be there and be required for solving common problems. Thus, permanently

damaged relations to a neighbour can be undesirable. So, if a permanent break is impossible

or highly undesirable, or if no other good option exists, then Penance would be preferable as

strategy over GT (Hovi, 2009, p. 91).

In 1980, Axelrod completed an experiment where he allowed several different

strategies to play out a repeated game of the Prisoner's Dilemma against each other to

ascertain which strategy would be the one to yield the greatest payoffs in relation to all the

other strategies. The results were first used as the basis for an article (Axelrod & Hamilton,

1981), and then a book (Axelrod 1984). In these two works both titled the Evolution of

Cooperation, Axelrod put forward four hallmarks of a successful strategy for successful

cooperation. These four hallmarks are willingness to cooperate, retaliating, forgiving, and

clear (Axelrod, 1981). Willingness to cooperate includes things like not being the first to

defect, and not to be envious of your opponent’s gains. Retaliating means that the strategy is

willing to punish a defecting player. Forgiving means that the strategy is not afraid to

cooperate with a player that has previously defected. Lastly, a clear strategy is one that is easy

to follow and for the opposing player is easy to recognize, if your opponent knows what you

are doing he/she will know that defection will be punished, but as long as they themselves

have not defected they do not need to fear defection.

34

When looking at our three strategies, these hallmarks are easily recognised. First, GT

is not forgiving, when a defection has occurred there is no way back to cooperation. GTs is

the most retaliating strategy, but in the ultimate retaliation there is no room for forgiveness.

TfT is forgiving to almost any strategy except itself, as if both players play TfT and one for

some reason defects, there is no way back to cooperation. Meanwhile, all three strategies are

willing to cooperate, retaliating, and clear.

4.3 Empirical argument

The Agreement between Brazil and Norway is based on the principle that payment is

given for accomplished reductions in deforestation. Especially the Norwegian government

stresses this point (Norwegian government, 2018). This is further supported by Article 2 of

the memorandum of understanding that established the agreement (Norwegian and Brazilian

governments, 2008) By structuring the agreement in this way, there is already a built-in

element of enforcement. As such an agreement structure allows the payments to increase or

decrease with an increase or decrease in Brazil’s deforestation efforts. Although such an

agreement structure points us towards TfT or Penance, the question remains what the

Norwegian response would be to a complete collapse in the Brazilian effort. One thing is

differing results in the deforestation work caused by other factors than effort put in, but what

the response to a complete seizure of all effort to end deforestation is something else entirely.

Norway’s response to the actual choice of Brazil of whether to fight or not fight deforestation,

is a main focus of this thesis.

In August 2019, the Norwegian Department of the environment decided to stop all

payments to Brazil. The argument was that Brazil had broken the agreement between the two

countries, that is Brazil had defected. Norway pointed to Brazil's unilateral decision to shut

down the board of the Amazon Fund and to the fact that the increase in deforestation in the

Amazon between July 2018 and July 2019 was a staggering 278% (Røst, NTB, 2019). “What

Brazil has done proves that they are no longer interested in bringing an end to deforestation.”,

the then Norwegian minister for climate and the environment Ola Elvestuen said.

Given that the Brazilians have defected, they are no longer working towards ending

deforestation in the Amazon, the Norwegian response is an indicator of which strategy the

Norwegians pursue. As a response to the Brazilian defection we know that Norway has

chosen to defect. This action in itself does not reveal whether the Norwegians are playing GT,

35

TfT, or Penance, or some other strategy, in contrast their attitude towards returning to

cooperation might give an indication.

Since the breach of the agreement, the Norwegian government has been working

towards a restoration of normality. The Norwegian government has confirmed that they’re

negotiating with the Brazilian government in an attempt to restore the agreement. Still, the

Brazilian government has not presented any new design of the fund’s control mechanism that

the Norwegians have found acceptable (Klevstrand, Oterholm, Gjerstad, 2019). In addition,

the Bolsonaro government has consistently denied both the increase in deforestation and the

fact of climate change itself (NTB, 2019).

Still, the Norwegian government does not seem to have given up on the restoration of

the agreement in some form. It has been confirmed that the Norwegians are in dialogue with

the governors of the different Brazilian states in the Amazon. These states are working for

either the restoration of the agreement with the federal Brazilian authorities, or a new

agreement with the local states (Mikkelsen, 2019). The governors have drafted two different

solutions, one is a restart of the original Amazon fund in its previous incarnation, the other is

a new agreement where the nine Brazilian states that contain the Amazon rainforest join

together to form an independent judicial entity, that the Norwegian government can do

business with. Although the Norwegian government is positive to the engagement from the

governors of the Amazon states, its primary focus is on rebuilding the original agreement they

consider Brazil to be in breach of (Mikkelsen, 2019).

From the Norwegian reactions to the Brazilian defection there are some key insights

that can be ascertained. The first of these is that the Norwegian government has provided a

clear reaction to the Brazilian defection. This reaction has been to freeze all payments. In

other words, Norway has chosen to defect. Another insight is that the Norwegians are

interested in a return to cooperation. In order for the payments to recommence, the Norwegian

government demands a solution to the disagreements about the governing of the Amazon fund

that Norway can agree to, and a return to Brazil actually working for a reduction of

deforestation. From these insights it’s clear that the Norwegian government is not working

under a GT strategy as they are working towards a restoration of cooperation, something that

would not happen under a GT strategy. This means that the Norwegian government is

following a forgiving strategy. Among those so far discussed in this thesis this excludes GT

and points towards either a TfT or a Penance strategy.

36

4.4 Conclusion

In this chapter, two different ways of attempting to discern which strategy the

Norwegian government is pursuing have been presented, one based on theoretical arguments

and the other based on empirical ones. Both end up with presenting two different options for

which strategy the Norwegian government have chosen in their attempt to create a self-

enforcing agreement with Brazil.

Through the theoretically based argument it was put forward that the Norwegian

government would go for either a GT or penance strategy, as these fulfil more equilibria than

TfT. Still, based on the empirically based deduction the Norwegian government chosen

strategy appears much more likely to be a forgiving one like either Penance or TfT, not GT.

By comparing the results from these two different discussions, I found that neither method

excludes Penance. On the contrary, Penance seem to be found among the most likely

candidate for the Norwegian strategy in both. In the theoretical part of this chapter, it was

stated that Penance is the preferable strategy in a situation where permanent defection is either

impossible or very undesirable. Through the data presented in the empirical part of this

chapter we know that the Norwegian government does not want permanent defection. To the

contrary, they are working hard in an attempt to restore cooperation. In the same way, the first

statements from the Norwegian government after the Brazilian defection was that they wanted

and hoped that a way could be found where the agreement could be “restarted”. The fact that

permanent defection in this scenario is highly unpreferable for the Norwegian government

excludes a GT strategy. In addition, we know from the theoretical part that if the Norwegian

government aims at a self-enforcing agreement, then Penance is preferable to TfT, because

Penance provides a way back to cooperation after defection. Penance is a Nash equilibrium, a

sub-game perfect equilibrium and weakly renegotiation proof, whereas TfT only provides a

Nash equilibrium. Also, the only strategy that unequivocally embodies all of Axelrod's

hallmarks is Penance. In conclusion the seemingly likely choice of strategy for the Norwegian

government for achieving a self-enforcing agreement considering the theoretical and

empirical arguments would be Penance.

37

5.0 Penance: A strategy in play

5.1 Introduction

This chapter considers how Penance as a strategy interacts with other strategies when

played in an infinitely repeated PD game. In section 5.2, a framework for these games will be

presented. The framework does heavily affect the results of these games. Then section 5.3

follows up with a short discussion on what success for Penance is. Section 5.4 consists of

analysis of Penance played against some other common strategies for repeated PD games.

First, I put Penance up against two strategies that have not been presented previously in this

thesis, always cooperate and always defect, to see how Penance does against unresponsive

strategies. Then Penance will play against the other strategies presented in chapter 3 Grim

Trigger and Tit for Tat. Finally, Penance vs Penance will be considered.

5.2 Framework

Before looking into what happens in different scenarios where Penance plays against

other strategies, a framework for these games must first be established. For these games I will

continue to use the PD base game presented in chapter 3 with the same payoffs. Interactions

between different strategies will of course be different depending on what the base game

looks like. I assume there are only two players, as it is two-player interactions that are of

relevant to this thesis.

In addition, I will assume that w is high enough for the future to be of such that value

both players consider cooperation desirable. Since we are here concerned with infinitely

repeated games 𝛿, the perceived chance of continued interaction, = 1. Because 𝛿 = 1, none of

the players will ever consider the current round to be the final. 𝛿 = 1also has the consequence

that constant cooperation from both sides has a greater long-term value than constant

defection from both players.

5.3 What is a successful strategy

In this chapter, the success criteria for a strategy is its ability to establish, sustain, and

restore cooperation. The discussions will be centred around the following questions: Can

Penance establish cooperation? After cooperation has been established, can Penance sustain

38

cooperation with the opponent strategy? Finally, if a defection were to happen, can Penance

together with the other strategy find a way back to cooperation?

To further the theoretical discussion, I will also see the results of these matchups

through the lens of Axelrod’s (1984) hallmark of a successful strategy for cooperation

presented in chapter 4. How does Penance’s willingness to cooperate, it’s forgiveness, its

willingness to retaliate, and its clearness affect its ability to reach the aforementioned goals in

these interactions? Axelrod postulated that these four conditions were the hallmarks of the

most successful strategies for achieving the greatest payoff in a repeated prisoner’s dilemma

game, and through the following examples I will show how these four hallmarks might in

general be a great strength, and yet in individual matchups sometimes turns out to be

weaknesses.

5.4 Played against…..

I will now analyse interactions between Penance and a selection of other strategies for

repeated games. I focus the discussion on the logical consequences if there is one player using

the Penance strategy and another player playing an opposing strategy. This discussion will

reveal some of the strengths and weaknesses of Penance as a strategy for achieving,

sustaining, and restoring cooperation in a repeated game.

5.4.1 Always cooperate and always defect

If a player plays always cooperate, hereafter all C, that means that this player always

cooperates no matter what the other player does. Similarly, if a player plays the always defect

strategy, hereafter all D, then the player always defects, no matter what the other player does.

Of Axelrod’s (1981) hallmarks of a successful strategy, all D is only clear, while all C is clear

and willing to cooperate. Neither of them is retaliatory, as they do not react to the other

player’s action at all. As they are non-responsive to the other player’s actions, it’s difficult to

say whether they’re forgiving or not. One could argue that all C is extremely forgiving as it

will never defect no matter what the other player does. It can also be argued that all D in the

same way is extremely unforgiving as it will never cooperate no matter what. These two

might be the most elementary forms of strategies that exist. I will still discuss how they play

up against Penance in order to problematize some of Penance behavioural pattern.

39

First, consider Penance vs all C. In the first period both players will cooperate and

continue to do so in every period onwards. This will give both players a payoff R in each

period. Although this is collectively the best outcome, using the previously presented payoffs

from chapter 3 the combined payoffs of both players are 6, it’s not the best outcome the

player playing Penance could achieve. All C is a strategy which is very simple to exploit, as

the it will not change its behaviour no matter what the other player does. Therefore, if the

player knows in advance that the opposing player will use all C then it will be better for the

opposing player to defect in every period if T is greater than R. If the goal of the player is to

maximize his own payoff, then the weakness of Penance is that Penance never even attempts

to exploit other strategies. Unwillingness to exploit other strategies and willingness to

cooperates is something that, when considering matchups against multiple strategies, is one of

the greatest strengths a strategy can have (Axelrod, 1981, p. 33). Still, if only considering a

single repeated game against all C, it becomes something that keeps Penance away from

maybe the only situation where it’s possible to achieve a periodic payoff of all T in every

period.

In a match-up against all D, Penance faces a different problem with the same source.

In a match-up against all D, Penance will (as always) cooperate on the first turn, while all D

will defect. Every turn after this first both players will defect every single time. In the first

period, Penance will receive a payoff of S. Meanwhile, all D will receive a payoff of T. In all

following periods, both players will receive a payoff of P. This would mean that Penance

actually comes out worse than all D. This leads to the conclusion that if the opposing player

has no intention of establishing cooperation Penance can be exploited due to its willingness to

cooperate. However, Penance can only be exploited for a single period.

Even though, as stated earlier, the strategies of all D and all C might be rare in real

life, mostly because of their inability to react to other players, they reveal some of the

weaknesses in strategies like Penance, which inhabit the hallmarks of Axelrod (1981).

Axelrod’s experimental tournament made it clear that willingness to cooperate and

unwillingness to exploit characterize the most successful cooperative strategies. Here we have

seen that these two attributes can in single infinitely repeated PD games be weaknesses. In the

previously discussed matchups these hallmarks prevent Penance from achieving the

maximum possible aggregate payoff.

40

5.4.2 Grim trigger

As presented in chapter 3, both GT and Penance cooperate until the other player

defects. As both strategies are willing to cooperate and do not attempt to exploit one another,

they will manage to enter and maintain cooperation. If nothing else interferes, they will

continue to cooperate until the end of the game, achieving a periodic payoff of R.

Real life is more chaotic and human interaction is open for error. Therefore, in a real-

world scenario we must consider the possibility of an erratic defection. If the Penance player

is the one to defect, this will then give that player one turn with a payoff of T, while the GT

player will have payoff of S. In next period, GTs retaliates by defecting in every following

interaction. The Penance player, now returning to normality after the erratic defection, will

then cooperate in the first period. While Penance cooperates, GT defects. Penance will

consider the previous period where it cooperated while GT defected as it has taken its

punishment, and therefore cooperation has been re-established. In the next period Penance

will cooperate again, while GT will defect again. From the following period and onwards both

players will defect.

This allows GT two periods with a periodic payoff of T, while Penance get a periodic

payoff of S. As the GT player will never

again return to cooperation both players will

earn a periodic payoff of P from there

onwards. This lack of forgiveness is what

makes GT unable to restore cooperation: If

any player defects, a GT player will never

return to cooperation even if that would be

better for the GT player in order to maximize

payoffs. The Penance player still comes

worse out in this interaction than the GT

player as its strategy mandates two turns achieving a payoff of S. The payoffs can then be

written like.

𝑃𝑒𝑛𝑎𝑛𝑐𝑒: 𝑇 + 𝑤𝑆 + 𝑤2𝑆 + 𝑤3𝑃 + 𝑤4𝑃+. . . . . . = 𝑇 + 𝑆(𝑤 + 𝑤2) +𝑤3𝑃

1 − 𝑤

𝐺𝑇: 𝑆 + 𝑤𝑇 + 𝑤2𝑇 + 𝑤3𝑃 + 𝑤4𝑃+. . . . . . = 𝑆 + 𝑇(𝑤 + 𝑤2) +𝑤3𝑃

1 − 𝑤

41

Next, we turn the tables and assign the

GT player to defect first. If the GT player

defects, Penance defects in retaliation in the

next period. As one player have defected the

GT player continues to defect in all remaining

periods. After having been defected against

Penance will defect in the following period.

Penance will not return to cooperating until

GT cooperates one round while it defects,

which will not happen. In all following periods both players will defect.

When GT defects it will achieve a periodic payoff of T, while Penance achieves a

periodic payoff of S. From the following period and onwards both players will earn a periodic

payoff of P. Which will make the payoffs look like:

𝑃𝑒𝑛𝑎𝑛𝑐𝑒: 𝑆 + 𝑤𝑃 + 𝑤2𝑃+. . . . . . = 𝑆 +𝑤𝑃

1 − 𝑤

𝐺𝑇: 𝑇 + 𝑤𝑃 + 𝑤2𝑃+. . . . . . = 𝑇 +𝑤𝑃

1 − 𝑤

5.4.3 Tit for Tat

TfT and Penance are similar but have one key difference in how they react to a

defection. Still, both Penance and TfT are willing to cooperate and so as none of them will

defect first, cooperation would be sustained between them. This will allow both players a

periodic payoff of R for the entire game.

Let's consider a scenario where the player utilizing TfT erratically defects. If TfT defects,

Penance will react by defecting in the next round. TfT will reply to Penance’s cooperation in

the period of the erratic defection by cooperating. This will lead Penance to consider the debt

to have been paid and will therefore revert to cooperation the following turn. TfT, on the other

hand, will react to Penance’s defection in the previous round by defecting. As Penance now

again has been defected against, it will defect in the following period. This begins a situation

where TfT will defect every odd numbered round and cooperate every even numbered round.

For Penance, the situation will be opposite. Penance will cooperate every even numbered

round and defect every odd numbered round.

42

This interaction will end with TfT achieving a periodic payoff of T every odd

numbered round, and a periodic payoff of S every even numbered round. Again, Penance will

be opposite of TfT. Penance will earn a

periodic payoff of S every odd numbered

round, and a periodic payoff of T every even

numbered round. As 2R > T+S, this means

that Penance and TfT are collectively worse

off by this interchange of cooperation and

defection than by constant cooperation. This

result materializes because TfT only

considers the previous period when deciding

what action to take. It does not take into

consideration that it was it’s one erratic

defection that made Penance defect in the first

place. Penance will therefore never be able to regain its loss without triggering a defection

form TfT. TfT will stop any attempt at restoring cooperation as unlike Penance it does not

take into consideration who defected first. As such, Penance is more forgiving than TfT, as it

takes who defected first into consideration. The payoffs will then be:

𝑃𝑒𝑛𝑎𝑛𝑐𝑒: 𝑆 + 𝑤𝑇 + 𝑤2𝑆 + 𝑤3𝑇+. . . . . . =𝑆 + 𝑤𝑇

1 − 𝑤3

𝑇𝑓𝑇: 𝑇 + 𝑤𝑆 + 𝑤2𝑇 + 𝑤3𝑆+. . . . . . =𝑇 + 𝑤𝑆

1 − 𝑤3

On the other hand, if Penance defects first the outcome will be different. If

Penance erratically defects then on the

following round TfT will defect. Penance

makes amends in the next period by allowing

TfT to defect while it cooperates, in other

words Penance pays its penance. In the

following period, TfT responds to Penance’s

cooperation in the previous round by

cooperating. Meanwhile, Penance having

allowed TfT to regain what it lost from

Penance’s erratic defection will now again

43

cooperate. Cooperation has therefore been restored and will continue until the end of the

game. This shows that Penance, by being more forgiving than TfT is when itself is the first to

defect, restore cooperation. The payoffs will be:

𝑃𝑒𝑛𝑎𝑛𝑐𝑒: 𝑇 + 𝑤𝑆 + 𝑤2𝑅 + 𝑤3𝑅+. . . . . . = 𝑇 + 𝑤𝑆 +𝑤2𝑅

1 − 𝑤

𝑇𝑓𝑇: 𝑆 + 𝑤𝑇 + 𝑤2𝑅 + 𝑤3𝑅+. . . . . . = 𝑆 + 𝑤𝑇 +𝑤2𝑅

1 − 𝑤

5.4.4 Itself

So far I have investigated what happens to Penance when it plays against a selection of

other strategies than itself. Now it’s time to discuss what would happen in different scenarios

if Penance plays against itself. Penance playing against Penance will of course be the closest

thing to the theoretical concept of Penance discussed in chapter 3. Penance is willing to

cooperate and therefore will always begin with cooperation. This will lead to both players

cooperating for the remainder of the game as none of them will be the first to defect without

interference.

If one Penance player erratically defects while the other cooperates, then the defecting

Penance player will allow the other player to

defect while itself cooperates the following

period. Since the offending player has made

penance to the offended player, cooperation

will have been restored and cooperation will

continue throughout the game, provided w is

sufficiently high. Penance’s easiest matchup

to restore cooperation with after defection is

itself. As Penance is built to find the balance

between being retaliatory and forgiving, it

should not be surprising that Penance manages to both punish and restore cooperation with

itself. Giving payoffs:

𝑃𝑒𝑛𝑎𝑛𝑐𝑒 𝐷: 𝑇 + 𝑤𝑆 + 𝑤2𝑅 + 𝑤3𝑅+. . . . . . = 𝑇 + 𝑤𝑆 +𝑤2𝑅

1 − 𝑤

44

𝑃𝑒𝑛𝑎𝑛𝑐𝑒 𝐶: 𝑆 + 𝑤𝑇 + 𝑤2𝑅 + 𝑤3𝑅+. . . . . . = 𝑆 + 𝑤𝑇 +𝑤2𝑅

1 − 𝑤

Finally, let us consider what would happen if both players were to defect in the same

period. Because both players erratically defected, they will both cooperate to make amends in

the following period. Cooperation has been restored.

5.5 Conclusion

The focus of this chapter has been how Penance as a strategy reacts and functions

when played against other strategies, and whether Penance can manage to establish, sustain,

and restore cooperation.

First, Penance was being played against, all C and all D. It became clear that even

though Penance did not do terribly, it did not do optimally in terms of payoff maximization,

because of the very same functionality that Axelrod (1984) pointed to as the hallmarks of a

successful cooperative strategy. This leads to the conclusion that these functions only make

the strategy perform optimally when the opposing strategy is responsive to the actions of

Penance. Penance is designed to maximise payoffs against responsive strategies, and therefore

fail against unresponsive ones.

Secondly, against GT and TfT Penance easily establish cooperation and sustain it.

Still, if either GT or Penance for some reason were to defect, then there would be no way

back to cooperation because of GT’s unforgiving nature. The interplay between Penance and

TfT is here much more interesting. If TfT were to erratically defect, there would not be a way

back to cooperation, because TfT only considers the action of the opposing player in the

previous period when deciding what to do. If TfT were to defect against Penance, a situation

of alteration between defect and cooperate would begin where the players would take turns

achieving a periodic payoff of S and a periodic payoff of T. Interestingly, if Penance

erratically defects, Penance’s consideration for who defected first would allow cooperation to

be restored. When Penance plays against itself, cooperation will always be established,

sustained, and restored.

Thirdly, these interactions allow us to see how Penance’s fulfilment of Axelrod’s

hallmarks affects its interaction with other strategies. Penance’s willingness to cooperate will

lead to Penance establishing and sustaining cooperation with any cooperative strategy. In

addition, Penance’s forgiving nature means that there are ways back to cooperation after

45

defection has occurred. Although some traits of the previously discussed strategies can

impede such a restoration of cooperation.

46

6. Why Brazil defected

6.1 Introduction

To explain why Brazil defected. I first briefly discuss the defection itself. The purpose

is to establish some assumptions on which to base the further discussions in this chapter. The

remainder of the chapter will be dedicated to a discussion and analysis of different hypothesis

concerning why Brazil defected. In section 6.3, I will focus on whether a change in discount

factor might explain Brazil’s defection. Section 6.4 considers the possibility of a transition

into relative gains. Section 6.5 ponders whether Brazil might have changed its strategy.

Section 6.6 discusses whether the election of Bolsonaro changed the preferences of Brazil.

Lastly, in section 6.7 I summarize the discussion, and conclude.

6.2 The defection

As explained in chapter 4, in August 2019 the Norwegian government ceased its

payments to the Amazon fund. This cease was a response to an alleged Brazilian defection

consisting of a shift in policy away from rainforest conservation, combined with a unilateral

dismantling by presidential decree of two key committees in the Amazonas fund executive.

These Brazilian actions triggered strong protest by Norway and Germany. In particular,

changing the governing structure of the Amazon fund without consent from all participating

nations was considered a breach of the agreement (Vik, 2020).

Prior to the defection Brazil would have preferences similar to those assumed for

Brazil in chapter 3. Empirical evidence presented in chapter 2 suggest that Brazil sincerely

wanted to work against deforestation; however, the lack of financial resources made this a

very difficult task. We can also assume from evidence that the strategy chosen by Brazil was

cooperative. As the instigator of the agreement, Brazil invited Norway to collaborate (Vik,

2020), and started their efforts to fight deforestation before receiving the first payments. As

the current defection is the first in the history of the agreement, it seems that Brazil has not

been using an exploitive strategy. The agreement permits Brazil to take punitive action.

should Norway unrightfully withhold payments or take other defecting actions. Thus, for the

remainder of this thesis I will assume that prior to its defection, Brazil utilized a strategy

similar to TfT or Penance.

47

As mentioned in chapter 2, Brazil’s defection occurred after the election of president

Jair Bolsonaro. It is actions taken by the Bolsonaro government that are considered

defections, and these actions represent a clear breach with former Brazilian policies. I

therefore argue that Brazil’s defection resulted from some change in Brazilian policy that

happened when Bolsonaro took power. The remainder of this chapter will try to determine the

nature of this change was.

6.3 Change in w

As shown in chapter 3, all repeated PD strategies require a sufficiently high w to

enable a self-enforcing agreement. A decrease in the discount factor would lead to the

defection of a player. Therefore, if Bolsonaro’s Brazil has an insufficiently high discount

factor, they would defect. An interesting hypothesis is therefore if the Bolsonaro

government’s coming to power entailed a reduction in Brazil’s w. From chapter 3 we know

that the discount factor is 𝑤 =𝛿

1+𝑟, where 𝛿 represents the chance that the players will

encounter and interact with each other again. The other parameter is r, the discount rate. A

change in either parameter could therefore case a change in w.

First, can we make a reasonable argument that 𝛿 have changed? In other words, is it

likely that the probability of Norway and Brazil interacting again changed when Bolsonaro

took office? I argue that such ab thing is unlikely. First, Bolsonaro assuming the office of

president did not change the fact that Norway and Brazil have an ongoing agreement that

requires them to interact again, if nothing else to abandon those agreements. Defection is

interacting just as cooperation is. The existence of the agreement in itself prevents a decrease

in 𝛿. In addition, Brazil and Norway still have other business than a common endeavour to

end deforestation in the Amazon. Brazil was in 2011, after the EU and the USA, the country

with the third most Norwegian financial investment(Norwegian government, 2011). Norway

and Brazil are also interconnected trading partners. In 2013 the sum of imports and exports

between Norway and Brazil was 13 700 000 000 NOK (Norwegian government, 2014). As

late as October 2019 senior officials of the Norwegian and Brazilian governments met and

discussed subject like oil, mining, and innovation (Norwegian government, 2019). These facts

lead us to the obvious conclusion as there is still a near 100% chance that Norway and Brazil

will continue to encounter and interact with each other, 𝑙𝑖𝑚𝑥→1

𝛿 = 𝑥.

48

If 𝛿 has been constant, then w can only have changed if r has changed. The discount

rate determines the present value of future gains (Investopedia, 2020). If the Bolsonaro

government has a reason to consider future gains less valuable (relative to present gains) than

his predecessor did, then the discount rate goes up and w decreases. There are many different

reasons why the Bolsonaro government might have this conception; however, most have to do

with risk. If the Bolsonaro government considers the world a more unstable and chaotic place

than previous governments did, then they might consider the future harder to control. “With a

loss of control, the rewards of future oriented project become more uncertain, and a

reasonable response is to shift focus to the present, where control is greater and risk less.”

(Oberhofer, 1989). There are of course several different kinds of risks we take when we

attempt projects where the rewards lie in the future. Among these are technical, economic and

political risks (Park & Matunhire, 2011).

It is hard to find good reasons why the Bolsonaro government would perceive greater

technical risks with the agreement, as the framework remains the same as it was when the

agreement was signed. One source of greater technical risk might be the concern that Brazil

would no longer be able to reduce deforestation. However, the methods utilized by previous

governments have proved effective, and the structure of the agreements would trigger

payments from Norway even with smaller 𝐶𝑂2 savings, as shown in chapter 2.

Economic risk divides into price risk, supply/demand risk and exchange risk (Park &

Matunhire, 2011). Based on scientific consensus, there is no question that there will be a

demand for the rainforest will be present in the future to prevent ecological disaster. That

leaves risk concerns related to price and exchange.

As the agreement states that the payment from Norway is 5 USD per metric ton 𝐶𝑂2

saved, Brazil might fear that the value of the USD could decrease significantly. Such fear is

unlikely, as the USD is the global reserve currency, and as long as it holds this position it will

remain in high demand. There is a possibility that increased uncertainty about the health of

the future US economy might cause a deprecation of the currency. Nevertheless, Bolsonaro’s

great admiration for president Trump would suggest that Bolsonaro is not having such

concerns. Bolsonaro has often praised president Trump and his policies.

The last economic risk is price risk, that is, the risk that the unit cost of deforestation

reduction will in the future outweigh the Norwegian payments, so that the Brazilian efforts are

no longer economically sustainable (Park & Matunhire, 2011). If this were the case, a logical

49

move by the Bolsonaro government would be to demand an increase of the agreed

compensation of 5 USD per metric ton 𝐶𝑂2 saved. However, no such demands have been

made. Indeed, the Brazilian demands for returning to cooperation are political, rather than

financial (Vik, 2020).

The final risk contained in the discount rate is political (Park & Matunhire, 2011). As

Brazil and Norway are both sovereign nations in their own right, this risk is minor compared

to what it would be for private operators, like changes in regulation, taxes or nationalization

(Park & Matunhire, 2011). The political risk for the Bolsonaro government stems mostly from

the fact whether cooperation or defection might influence his chances of re-election. So far,

Bolsonaro’s poll ratings have deteriorated when he is perceived as not doing enough for the

rainforest. During the 2019 Amazon forest fires, proportion of the respondents answering that

Bolsonaro was doing a bad or terrible job rose from 33% to 38%, while 51% thought he was

doing a bad or terrible job handling the fires (Spring, 2019). This shows that his handling of

the rainforest affects the perception of the president by the Brazilian people.

In summary, I find no major arguments that supports the idea of a significant change

in 𝛿 or r. If this conclusion is correct, it seems unlikely that the defection by the Bolsonaro

government was caused by a change in w.

6.4 Relative gains

Another potential explanation of Brazil's defection is the introduction of concerns over

relative gains. If the Bolsonaro government regards its interaction with Norway on the basis

of relative gains, the defection might be rational.

Without relative gains concerns the base game for the repeated game between Brazil

and Norway looks like what is shown in Table 3.1. In contrast with relative gains each

player’s payoff for each combination of

actions will equal the player’s absolute

payoff (Shown in Table 3.1) minus the

opposing player’s absolute payoff. This

changes the nature of the game as it

changes the achieved payoffs of each

combination of actions. A whole new

scenario would be created (see Table 6.1).

50

For Brazil in this new scenario there is no difference in payoff between both players

cooperating and both players defecting. In addition, the payoff from being the only one

cooperating, being the sucker, is now far worse than before, and the payoff from being the

only one defecting, the temptation, remains as before. With the introduction of relative gains,

the only rational choice for Brazil becomes defection, as it’s the only choice where Brazil can

achieve a positive payoff.

Is it plausible that the Bolsonaro government has moved Brazil to caring about

relative rather than absolute gains? Relative gains and the assumption that international

politics is a zero-sum game are often linked to a realist worldview (Lebow, 2011). Realism in

international relations focuses on the distribution of power between nations. It argues that the

goal of any state is and should be to preserve a balance of power where no single other nation

will have the capabilities required to threaten or destroy you, and in so doing safeguard your

own safety (Lebow, 2011). According to this worldview in every interaction with another

nation you must receive at least as much as you need to avoid that the balance of power shifts,

and you will only seek out interactions where you can gain at least as much as your co-player.

If Bolsonaro holds a realist worldview, it might motivate him to include relative gains when

calculating payoffs. Bolsonaro is said to regard foreign policy through a Cold War like lens

like those of President Trump (Chagas-Bastos & Franzoni, 2019). The foreign policy of the

Cold War is considered the most realism-like, as this was the period where this political

outlook dominated the major powers (Lebow, 2011). Bolsonaro has also demonstrated little

regard for international organizations like the UN and has been accused of attempting to

dismantle the more liberal foreign policy of his predecessor, like Cardoso and Lula (Chagas-

Bastos & Franzoni, 2019). Thus, it is plausible to argue that Bolsonaro’s worldview is

probably close to some form of realism, and it would be far from impossible that Bolsonaro

considers any interaction a zero-sum game. Still, Brazil is a much greater country compared

to Norway. It’s population, land mass, military power and economy are all much larger. This

strong asymmetry between the two countries would unlikely be shifted through rainforest

deforestation work. Still, one could argue that Brazil is not concerned with Norway, but the

combination of Norway and Germany which together is a much closer to an equal rival.

Nevertheless, it’s difficult to argue that an agreement where one party is paying the other to

act in a way that have no financial or military benefit for the financing parties would change

the balance of power between them, and if it shifted the balance of power it would most likely

51

do so in Brazil’s advantage as it is them who receive the added financial resources. I will

therefore argue that even through relative gains is hardly an impossible solution, it is not the

most plausible one.

6.5 Change of strategy

A third possible explanation is a that the Bolsonaro government has instigated a

change in Brazil’s strategy. As stated earlier in this chapter, the instigation and previous

stability of cooperation suggest that Brazil prior to Bolsonaro pursued a cooperative strategy.

In chapter 5, I showed that when two cooperative strategies interact cooperation will be

sustained, provided w is sufficiently high. Thus, assuming that Brazil’s defection was not

simply an erratic defection, the defection itself demonstrates that Brazil is no longer playing a

cooperative strategy. When Norway retaliated in response to Brazil’s defection, as would be

expected by someone playing the Penance strategy, Brazil did not repent and return to

cooperation. This indicates that Brazil defected purposefully. A purposeful defection means

that Brazil is now playing either an uncooperative strategy, or an exploitative strategy.

An uncooperative strategy, among them the all D strategy from chapter 5, is

characterized by playing defect in the first period, and continuing to do so regardless of what

strategy used by the other player. In many ways an uncooperative strategy is the opposite of a

cooperative strategy as defined by Axelrod (1984). If Brazil has begun to play an

uncooperative strategy, then the action dictated by this new strategy would be to defect.

Assuming Brazil’s aims to maximize their payoffs, and the game can be depicted as in Table

6.1, a change to an uncooperative strategy seems irrational, as 𝑇

1−𝑤>

𝑅

1−𝑤. There is simply

nothing to be gained in the long run by switching to an uncooperative strategy.

An uncooperative strategy could be motivated by a desire to show strength in order to

force cooperation. US sanctions against Cuba or Iran are arguably enforced by an

uncooperative strategy by which the US has committed to defect until the opponent has been

weakened to a point where it is forced to cooperate. However, the effectiveness of this

strategy is doubtful for two reasons. The first is that as of spring 2020, the US has not

managed to force neither Cuba nor Iran into cooperation; hence, there little, if any, empirical

that this approach works. The second reason is that a deep and lasting cooperative relationship

between Norway and Brazil existed prior to Brazil’s defection. Norway has never before even

52

considered stopping the agreed payments (Vik, 2020). If we consider payoff maximization to

be the goal of the Brazilians an uncooperative strategy would seem counterproductive

Another strategy change that might explain Brazil’s defection would be a switch to an

exploitative strategy. Example of exploitative strategies include Tranquilizer and Tester, both

of which, were participants in Axelrod’s (1984) tournaments. Tranquilizer and Tester are

based on the principle of playing nice and cooperatively, but as the games entered the final

rounds they would attempt to get away with defection to achieve additional payoff (Axelrod,

1984, p. 47). However, these strategies never performed as well as the strategies that abided

fully to the hallmarks theorized by Axelrod (Axelrod, 1984, p. 47).

I would argue that Brazil’s behaviour does not correspond to that of an exploitative

strategy. An exploitative strategy must be very responsive to the opposing strategy in order to

achieve a slightly higher payoff, however it is not interested in the game ending in continued

mutual defection. An exploitative strategy would therefore react quickly to retaliation by a

strategy like Penance. In particular, if Brazil were using an exploitive strategy returning

quickly to cooperation in response to Norway ceasing payments. Brazil does not appear to be

doing so; on the contrary, they appear to be reinforcing their defection (Vik, 2020). As Brazil

appears unresponsive to the Norwegian retaliation, I conclude that Brazil has not adopted an

exploitative strategy. Thus, I reject the third explanation.

6.6 Change in preferences

The final potential reason why Brazil defected I will consider is that the (absolute)

payoffs of the Brazilian government have changed. This would mean that the payoffs in Table

6.1, are no longer representative of how Brazil assesses these various outcomes. Brazil's

preferences might have changed in such a way that to maximize payoffs, defection is now the

most sensible action even against a cooperative strategy such as Penance. First, could

the value of T have changed? T represents the payoff related to the outcome where you defect,

and the other player cooperates. So far, I have assumed that T holds the highest numerical

value, 5. T is a scenario where Brazil receives money from Norway, despite not actively

engaging in deforestation reduction or otherwise upholding the agreement. Based on

statements from the Brazilian government, this seem to be their preferred scenario (Vik,

2020). The Brazilian defection appears to originate in a desire for a completed control over

53

the usage of the Amazon fund (Vik, 2020; Røst, 2019). There is no evidence pointing

towards T not being the outcome where Brazil gains the highest one-period payoff.

Next, consider the payoff of the outcome where Brazil cooperating singlehandedly, S.

In this outcome, Brazil actively engages in the fight against deforestation without the

monetary support of Norway. This is a fight Brazil will most likely lose without funding from

Norway (or other countries), as stated by former president Lula when he invited to this

cooperation (Foley, 2008). Indeed, this would be a scenario where Brazil is stuck with all the

work without the monetary resources to guarantee results. For our purposes, S is still the

worst payoff for Brazil.

The remaining question, then, is if Brazil might now prefer P to R. If they do, Brazil

now value the payoff from no payment and no combating deforestation over receiving

payments and combatting deforestation. This would give us a new base game shown in Table

6.2. There is some evidence that support this

possibility. While previous presidents have

spoken strongly in support of both combating

deforestation and international cooperation on

the subject, as documented previously in this

thesis, Bolsonaro himself seems to hold a

different point of view. After Bolsonaro took

office, rainforest deforestation has increased (Butler, 2020). In addition, Bolsonaro has

actively been dismantling the Brazilian institutions put in place by previous presidents to

prevent deforestation (Regnskogfondet, 2019; Vik, 2020; Aamodt & Hermansen, 2019).

Bolsonaro has also entered internal conflict in Brazil with NGOs and indigenous population

groups working to reduce deforestation (Vik, 2020; Londoño, 2019; Biller & Jeantet, 2019).

All these actions and statements from the government and the president himself point towards

a change in view where the current Brazilian government no longer thinks of combating

deforestation as a policy priority.

Bolsonaro also seems to believe that the payments are insufficient to compensate for

the loss of sovereignty over internal deforestation policy entailed by the agreement. This point

of view is emphasized by, among other things, the nature of the defection itself. The concrete

event constituting the defection was the unilateral change of the Amazon funds control

mechanisms (Vik, 2020). Bolsonaro has also emphasized that the Amazon forest belongs to

Brazil, and Brazil can do whatever it wants to with it without foreign interference (BBC,

54

2019). The apparent devaluation of the endeavour against deforestation in the Amazon, and

the likely reduction in valuation of foreign payments lead me to conclude that the Bolsonaro

administration prefers P to R. This preference effectively eliminates the potential for

cooperation.

6.7 Conclusion

In this chapter I have tried to explain why Brazil defected. First, I established some

basis for what Brazil’s original position was before the election of Jair Bolsonaro as president

of Brazil. Then, based on the game theoretic model presented earlier, I assessed various

explanations to why Brazil defected. I argued that there are no convincing reasons that 𝛿 nor r

have changed, and since w determined by 𝛿 and r, it is then very unlikely that w have changed

when these two variables remain consistent. Then, I discussed relative gains as an

explanation. I here argued that although considering relative gains would explain the

defection, and cannot be entirely disregarded as a possible explanation, it is an unlikely one.

The asymmetric relationship between Norway and Brazil and the nature of the deforestation

issue and agreement makes it hard to imagine it shifting the power of balance between the two

countries, and therefore a less fitting explanation. Moreover, I discussed the possibility of a

change in strategy, and concluding that the only way to explain a move to an uncooperative

strategy is that Brazil no longer aims to maximize payoffs. In addition, the new behavioural

pattern of Brazil does not match an exploitative strategy. Finally, I found that a change in

preferences, that Bolsonaro prefers P to R, is the most likely explanation. Indeed, Brazil's

defection is merciless, in the sense that Bolsonaro has given no signal that he intends to

compromise. Rather, he has said things like the following “ Norway, isn’t that the country that

kills whales up at the North Pole, who extracts oil there. They have nothing to teach us.”

(NTB, 2019). Statements like these, and Brazilian refusal to enter serious renegotiations,

make a rapid return to cooperation unlike

55

7.0 Response to Brazil’s defection

7.1 Introduction

In the previous chapter, Chapter 6, I suggested that the reason for Brazil's defection is

a change in their preferences. In this chapter, I build on this theory to establish whether

cooperation can be restored. After a brief summary of the problem, I consider possible tactics

for restoring cooperation, including mediation, issue linkage and sanctions (section 7.2). I

then consider these tactics’ viability, including which combination of tactics most promising.

Next, I discuss whether another design of the agreement could have prevented Brazil’s

defection. I consider whether the solutions presented in section 7.2 could have been

incorporated in the agreement from the very beginning. I also argue that a framework of

integration could have decreased the risk of defection. Finally, I summarize and conclude.

7.2 Norway-Brazil: Can cooperation be restored?

So far, this thesis has established that Brazil and Norway began cooperating to reduce

deforestation in the Amazon Rainforest. This cooperation was sustained for several years, and

both Brazil and Norway have expressed their satisfaction with the arrangement (Vik, 2020).

Then, after the 2018 presidential election shifts in Brazilian policy led to decisions perceived

by the Norwegians as a defection. In chapter 6, I argued that this shift in policy was caused by

a change in preferences on the Brazilian side, and that after this change there is no longer any

payoff gain for the Brazilians by cooperating (see table 3.2). This means that if Norway wants

to restore cooperation, they must negotiate a new deal that creates a new equilibrium. I will in

the following sections consider how such negotiations might be facilitated.

7.2.1 Mediation

Mediation is a possible way forward to a solution. Mediations may be defined as:

“A process of conflict management whereby disputants seek the assistance of, or

accept an offer to help from, an individual, group, state, or organisation to settle their conflict

and resolve their differences without resorting to physical force or invoking the authority of

the law” (Beardsley, Quinn, Biswas & Wilkenfeld, 2006)

Norway could bring in a third party that could guide them and Brazil through the

rigorous process of reaching a new agreement. A third party could, at least in principle, also

56

stand as a guarantor or even an enforcer of a new agreement. Mediation has been shown to be

highly effective in reducing tension or facilitating a new formal agreement. It increases the

chances of negotiations reaching a formal agreement five-fold. Moreover, depending on the

mediator’s style, it might more than double the chance of tension reduction (Beardsley,

Quinn, Biswas & Wilkenfeld, 2006).

A mediator might take several different approaches to resolving the conflict. First, a

mediator can facilitate communication between the parties. By ensuring a continuous

exchange of information, the mediator might be able to map the range of possible outcomes

and identify those that are acceptable to all parties. This way, the mediator might ensure that

the players possess complete information (Beardsley, Quinn, Biswas & Wilkenfeld, 2006).

I argue that this form of mediation would not be effective in our case. By now,

Norway and Brazil have a long history of cooperation, and already well-established channels

of communications. Norway knows what Brazil wants and vice versa (Vik, 2020). In addition,

in our model it’s not lack of information that is the problem, but rather the change in

preferences on the side of Brazil. Given this change, the formerly sustainable solution is no

longer within the overlapping range of win-sets.

A second mediation style is mediation by formulation. A formulative mediator makes

more substantive contributions to the negotiations by conceiving and presenting possible

solutions to the conflict. In so doing, the mediator might assist in establishing coordination,

thereby making negotiations more efficient. A formulative mediator might help discover a

mutually acceptable alternative to the current agreement. Formulators can be especially

effective at overcoming stalemates (Beardsley, Quinn, Biswas & Wilkenfeld, 2006), like the

one Norway and Brazil seem to have ended up in. Mediation by formulation might be a way

back to some form of cooperation for Norway and Brazil. Given the change in Brazil’s

preferences, the two countries need to discover a new equilibrium. A formulative mediator

might be able to help them do so.

The final form of mediation I will consider is manipulative mediation. A manipulative

mediator is also a substantive contributor to the negotiations. By using its position and

leverage as tools to influence the bargaining process and to facilitate an agreement, the

manipulative mediator attempts to shift the reservation points of the parties (Beardsley,

Quinn, Biswas & Wilkenfeld, 2006). In other words, the mediator attempts to move the

goalpost. A manipulative mediator could increase the cost of continued defection, and the

57

future downsides of reneging on the agreement. The use carrots and sticks to reward

agreement or punish disagreement creates pressure for the parties to move forward

(Beardsley, Quinn, Biswas & Wilkenfeld, 2006).

This form of mediation might also be effective in our scenario. Currently, there are

few costs for Brazil related to continuous defection (beyond not receiving Norway’s

payments). A manipulative mediator could change this. Also, by increasing the cost of

reneging in the future a manipulative mediator might cause Brazil to trust that it will actually

keep any possible gains by returning to cooperation.

7.2.2 Issue linkage

Issue linkage may be defined as “the simultaneous negotiations of several issues for

joint settlement” (Poast, 2012). As discussed in chapter 6, Norway and Brazil have economic

ties beyond Rainforest conservation. A possible solution to restore cooperation could

therefore be to link the result of other negotiations, where Brazil has more interest in a

cooperative outcome, to that of the Amazon agreement. The good news is that issue linkage

can increase the chances of successful negotiations, and the motivation of states to stay

committed (Poast, 2012; 2013). As such, issue linkage might be an option for Norway.

The problem with issue linkage is twofold. First, the cost could be extremely high and

might deter the parties from using this tactic (Poast, 2012). Linkage in our case would require

a new agreement on some other issue, perhaps also an institution to ensure that both parties

comply with the new agreement. Such things cost money (Poast, 2012). Second, locating an

issue where agreement would be worth enough for the Brazilians to accept a deforestation

outcome they consider opposed to their own interests might prove difficult. Depending on the

issues, linkage might also prove unpopular domestically. While domestic groups might

support one side of the agreement, the other side might face domestic opposition (Poast,

2012).

A recent surge in the interest in Brazil by the Norwegian oil sector might offer such an

opportunity for linkage(Akhtar, 2019). A major investment plan in Brazilian oil as a carrot

might tempt the Brazilian government to accept the restoration of an agreement they

otherwise would not consider to be in their interest. The Brazilian government has expressed

interest in expanding the nation's oil fields and has put forward a bill that would open new

lands for oil production. The problem is that this liberalization also opens fields in protected

58

indigenous lands (Reuters in Brazilian, 2020). This runs in direct opposition to the Norwegian

stated goals of increased protection of indigenous groups and land in the Amazon (Vik, 2020).

Such a linkage would therefore be hard to stomach for the Norwegians. This case points

towards a major problem with issue linkage as a solution to this impasse: Most potential

linkages would risk damaging other Norwegian interests in Brazil.

Still, EFTA and Mercosur are in the process of negotiating a comprehensive free trade

agreement. This agreement will cover trade in goods, trade in services, intellectual property

rights, government procurement, and sustainable development (EFTA secretariat, 2019). The

success of this agreement could be put on hold as collateral to enforce a return to cooperation.

This potential linkage could also induce other Mercosur countries to put pressure on Brazil.

On the other hand, it could also backfire and antagonize the other Mercosur countries, thereby

causing them to turn against Norway.

7.2.3 Sanctions

Yet another solution could be for Norway to impose some form of sanctions on Brazil.

“Sanctions are actions initiated by one or more international actors against one or more others

with either one or both of two purposes; to punish the others by depriving them of some value

and/or to make the others comply with certain norms the actor deems important” (Tsebelis,

1990). If Norway were to make the defection option bad enough for Brazil, Brazil might

prefer to comply with the deforestation agreement. Sanctions in the 20th century have most

often taken the form of economic sanctions (Tsebelis, 1990). To consider whether sanctions

might be effective, I construct a one-period game. We assume the players know each other

well, and therefore have complete information. Also, as Norway acts in response to Brazil's

defection they move sequentially. This

situation is shown in Table 7.2. The two

players’ utility payoff function are presented

as functions of x and y, 𝑢𝑁(𝑥, 𝑦) and

𝑢𝐵(𝑥, 𝑦). x and y are Boolean variables

where for x is 1 if Brazil defects and 0 if Brazil cooperates. Similarly, y is 1 if Norway

imposes sanctions and 0 if Norway does not sanction (Tsebelis, 1990).

𝑢𝑁(𝑥, 𝑦) = (𝑑𝑁 − 𝑐𝑁 − 𝑏𝑁 + 𝑎𝑁)𝑥𝑦 + (𝑐𝑁 − 𝑑𝑁)𝑦 + (𝑏𝑁 − 𝑑𝑁)𝑥 + 𝑑𝑁

59

𝑢𝐵(𝑥, 𝑦) = (𝑑𝐵 − 𝑐𝐵 − 𝑏𝐵 + 𝑎𝐵)𝑥𝑦 + (𝑐𝐵 − 𝑑𝐵)𝑦 + (𝑏𝐵 − 𝑑𝐵)𝑥 + 𝑑𝐵

If Norway chooses not to sanction, the value of the payoffs are the same as the values in our

repeated game. As Norway's goal is to restore cooperation, we assume Norway is sticking to

Penance (or Tit-for-Tat), Thus, if Brazil cooperates Norway cooperates, and if Brazil defects

Norway defects. The payoffs are as in the stage of our repeated game, depending on the

players’ choices. Therefore 𝑏𝑁 = 1, 𝑏𝐵 =

3, 𝑑𝑁 = 3, 𝑑𝐵 = 1. The payoffs differ from

the period payoffs of our repeated game if

Norway chooses to sanction. Sanctions, when

implemented impose a cost both on the

imposer and the on sanctioned. Brazil will

suffer a cost equal p. The cost for imposing

sanctions on Brazil for Norway will depend

on the size of those sanctions, Norway’s cost

will thus be a modifier, 𝛽, times p. Therefore

𝑎𝑁 = 1 − 𝛽𝑝, 𝑎𝐵 = 3 − 𝑝, 𝑐𝑁 = 3 − 𝛽𝑝, 𝑐𝐵 = 1 − 𝑝. Brazil will chose whether to cooperate

or defect before Norway then responds to the Brazilian choice with either sanctions or no

sanctions. This gives us a game like Figure 7.1.

For sanctions to be effective 𝑢𝐵(1,1) < 𝑢𝐵(0,0), as the utility for Brazil of cooperating

with no sanctions must be greater than the utility for Brazil of defecting and having sanctions

imposed to make cooperating a more tempting choice than defecting and facing sanctions.

Utility payoff for Brazil if they defect and Norway sanctions would be 3 − 𝑝, while utility

payoff for Brazil is they cooperated, and Norway does not sanction is 1. For 𝑢𝐵(1,1) <

𝑢𝐵(0,0), gives 3 − 𝑝 < 1, to be true 𝑝 > 2. So, sanctions are effective and might force Brazil

back to cooperation if the cost for Brazil of these sanctions are larger than 2. Relative to the

other numerical valuations of payoffs in this game 2 is a large number. Built on this the cost

of sanctions must be quite substantial for Brazil to deter them from defecting. Also, for

Norway's threat of sanctions to be believable, in the one-period game, their utility for

imposing sanctions if Brazil defects must be larger than their utility for not sanctioning if

Brazil defects, 𝑢𝑁(1,1) ≥ 𝑢𝑁(1,0), as Norway’s utility payoff if Brazil defect and they

sanction is 1 − 𝛽𝑝 and Norway’s utility payoff if Brazil defects and Norway does not

sanction is 1, this gives us that 0 ≥ 𝛽𝑝 . It is near impossible that the cost of implementing

sanctions for Norway is to be a negative number. Still, if Norway consider the sanction game

60

to simply be one period in the repeated deforestation game then they might accept a

suboptimal choice in order to restore cooperation in the repeated game, therefore imposing

sanctions even if 𝑢𝑁(1,1) < 𝑢𝑁(1,0).

If Norway choose sanctions as their strategy to restore cooperation p should be as

close to 2 as possible, as an increase in p leads to increase 𝛽𝑝 without changing the

equilibrium strategy for Brazil while weakening the credibility of Norwegian sanctions

(Tsebelis, 1990).

Imposing sanctions will create a sub-optimal outcome for both parties (Hovi, Huseby

& Sprinz, 2005), as 1 − 𝛽𝑝 < 1and 3 − 𝑝 < 3 for any value of p greater than 0. Norway

might stomach this to restore long term cooperation in the Amazon game, but Brazil might

equally stomach sanctions to re-establish the current situation. If a country has a high cost of

sanctions, they should avoid them (Tsebelis, 1990). An important factor for the success of

sanctions might be if Norway manage to surprise Brazil when initiating their sanctions, both

about initiating sanctions and the strength of the sanctions (Hovi, Huseby & Sprinz, 2005). As

this might make them consider the short-term loss of suffering sanctions rather than the long-

term gain defection in the Amazon game brings them and make them doubt that Norway have

a 𝛽𝑝 higher than 0.

A major issue for Norway is also that the Norwegian economy is a lot smaller than the

Brazilian, Norway: $434.167 billion, Brazil: $1.885 Trillion (The World Bank, 2020).

Although Norway has invested $21.3 billion in Brazil and indirectly affects over .5 million

jobs (Norwegian consulate general Rio de Janeiro, 2017), it is a very minor part of the

Brazilian economy. It would be difficult for Norway to press p high enough. A solution could

be to ally with other nations, like Germany who has similar preferences to Norway.

Unfortunately, sanctions where the imposing side consists of more than one country have

usually a smaller chance of success (Tsebelis, 1990). Thus, sanctions seem to be unlikely to

succeed.

7.2.4 Await restoration of the previous equilibrium

When Bolsonaro leaves office, it might be possible to return to cooperation. If Norway

tries to wait out Bolsonaro, it might be able to restore cooperation by sticking to Penance and

wait for Brazilian interests to realign themselves. A fundamental assumption for this to

happen is that when Bolsonaro leaves office, his preferences on deforestation leaves with him.

61

There is some empirical evidence to support that this might happen. As discussed in chapter 2,

all former presidents from both the right and the left have supported the agreement. In

addition, a majority of the candidates in the last presidential election wanted to stand by the

agreement, among them runner-up Haddad from the Worker party. Bolsonaro will eventually

leave the presidential office, either by impeachment, by losing the next election, or because of

the term limits. None of these possibilities are unheard of in modern Brazilian politics. Lula

ran out of terms; Rousseff was impeached and Temer chose not to seek re-election due to

massive unpopularity. In addition, there is also huge pressure from the international

community for Brazil to restore and reinforce their efforts against deforestation

The waiting strategy entails three major problems. First, Norway must endure

consecutive suboptimal payoffs. Meanwhile Bolsonaro will enjoy much higher payoffs,

giving little motivation for him to restore cooperation. This might also help entrench

Bolsonaro preferences in Brazil.

The second problem is uncertainty. Although it seems likely that any successor of

Bolsonaro will support the agreement, or at least be less of a hardliner than the president,

there is no guarantee. Moreover, Bolsonaro might win re-election, and if he does, he probably

will not leave office until in 2027. By then, Brazilian politics might have changed entirely.

A final problem with waiting Bolsonaro out is that climate change does not wait, and

the Amazon is a key environmental issue. As stated in chapter 2, the Amazon’s a fragile

ecosystem that cannot withstand a lot more deforestation. If Bolsonaro’s current policy

continuous for a long time, there might be no an Amazon left to save (Amazon Air

Foundation, 2019)

7.2.5 Discussion

So far in this chapter, I have presented some different ways Norway might pursue a

restoration of cooperation. Awaiting a restoration of the previous equilibrium has little chance

of producing a quick success. Moreover, even if success is eventually achieved it will

probably take a long time (unless Bolsonaro is impeached soon). None of the other options

presents a clear path to success either indeed, all of them, involve substantial uncertainty. In

addition, the imposing sanctions would likely damage future relations between the two

counties and should only be a backup option at best.

62

The remaining options are mediation and issue linkage, as negotiations seem to be at a

stalemate (Vik, 2020). Establishing a new equilibrium is essential to creating a new self-

enforcing agreement. Bringing in a formulative or manipulative mediator might help achieve

this goal. A mediator of one of these two types, or a combination of both, would in my

opinion have the best chance of moving the negotiations forward, especially if the mediator is

brought in at the same time as Norway opens for issue linkage as a possible solution.

Concerning linkage, the EFTA-Mercosur trade agreement seems to be the most promising

candidate. A mediator might help with some of the uncertainties around issue linkage, like

identifying valuable issues for Brazil that are also acceptable to Norway.

The greatest problem with mediation is who the mediator should be. A good candidate

would be -one that both governments trust and who possesses the power to convince both

nations that the final agreement will be kept. After all, Norway has ample reason to fear

another defection, and the Brazilian government has made it clear they disapproves of the

Norwegians (NTB, 2019).

A potential mediator could be the United States. Bolsonaro has repeatedly expressed

his admiration for president Trump (see chapter 6). Norway is also a long-term ally of the US

through its NATO membership. Moreover, president Trump has also expressed his

appreciation of the Norwegian people (Parr, 2018). As the premier economy and military

superpower of the world, the US also has the power to enforce an agreement. Trump is an

outspoken supporter of Bolsonaro and backed him up when he rejected aid in the fight against

the Amazon forest fires (Oprysko, 2019). Trump is a critic of the very idea of climate change,

and among other things pulled the US out of the Paris agreement. Herein lies the problem

with the US as a mediator, the current US administration simply does not have climate change

as a priority. The Norwegians would therefore have grounds to doubt Trump’s dedication to

such an endeavour.

That leaves us without any strong contenders for mediators. Bolsonaro does not

believe in the international order (Chagas-Bastos & Franzoni, 2019); hence the UN is not a

strong contender. Germany is part of the agreement on the Norwegian’s side, and Bolsonaro

have had altercations with the current French president, Macron (Jentoft, 2019). Thus, with

both of its major powers being considered opponents by Bolsonaro, the EU is also likely out

of the picture. I do not exclude that there might be a good mediator out there; however,

finding one that both parties trust and who is able to make an agreement possible will be

difficult.

63

7.3 How might parties handle future preference change

Suppose that in 2008 President Lula of Brazil and Prime minister Stoltenberg of

Norway envisioned that at some point in the future, someone would be elected in either

country that would have different preferences and might jeopardize the agreement. Could

Lula and/or Stoltenberg have taken any action able to prevent the current situation?

This question is important as the chance of a payoff preference change would end the

players possessing complete information. Norway will then have to consider whether to

cooperate and defect based on if they believe Brazil’s preferences have changed, and

therefore given them an incentive to defect. If Norway believe Brazil to have a chance of n to

change their preferences and a chance of n - 1 to not do so Norway’s utility functions for

defection or cooperation changes as Brazil will defect if their preferences change. If their

preferences do not change they stay with the strategy they currently utilize, Penance for

Norway and a cooperative and repercussive strategy for Brazil, while if their preferences

change like I argue Brazil’s has, from R > P to P > R, they will defect in the current periods

and all following periods. The aggregate payoffs for the different choices can be deduced

through looking back at chapter 5 and looking at payoffs received by Penance when playing

against cooperative strategies for the payoffs when preferences have not changed and Norway

cooperates, and through playing penance against an uncooperative strategy if preferences

have changed. Lastly, if Norway choose to defect it is not possible to give any good indication

on what Brazil response to a defection by Norway would be, if Brazil’s preferences have not

changed, as Norway has never defected. As the memorandum outlaying the agreement does

not contain any action Brazil can take in response to a Norwegian defection other than

cancelling the agreement (Norwegian and Brazilian governments, 2008). There is therefore a

strong possibility that a Norwegian defection and abandonment of Penance would lead to

mutual defection in all consecutive periods.

𝑢𝑁(𝑐𝑜𝑜𝑝𝑒𝑟𝑎𝑡𝑒) = 𝑛 ∗ (𝑆 +𝑤𝑃

1 − 𝑤) + (1 − 𝑛) (

𝑅

1 − 𝑤)

𝑢𝑁(𝑑𝑒𝑓𝑒𝑐𝑡) = 𝑛 ∗ (𝑃

1 − 𝑤) + (1 − 𝑛) (𝑇 +

w𝑃

1 − 𝑤)

64

If 𝑢𝑁(𝑐𝑜𝑜𝑝𝑒𝑟𝑎𝑡𝑒) ≥ 𝑢𝑁(𝑑𝑒𝑓𝑒𝑐𝑡) then Norway will stick with Penance, but if

𝑢𝑁(𝑐𝑜𝑜𝑝𝑒𝑟𝑎𝑡𝑒) < 𝑢𝑁(𝑑𝑒𝑓𝑒𝑐𝑡) Norway will have incentive to abandon Penance and pre-

emptively defect. If we set w to 0.66, the lowest value it can possess for Penance to be self-

enforcing (see chapter 2), and solve 𝑢𝑁(𝑐𝑜𝑜𝑝𝑒𝑟𝑎𝑡𝑒) > 𝑢𝑁(𝑑𝑒𝑓𝑒𝑐𝑡) for which value n must

have for Norway to prefer sticking to Penance we get that:

𝑛 ∗ (0 +0.66 ∗ 1

1 − 0.66) + (1 − 𝑛) (

3

1 − 0.66) ≥ 𝑛 ∗ (

1

1 − 0.66) + (1 − 𝑛) (5 +

0.66 ∗ 1

1 − 0.66)

Gives:

𝑛 ∗ (0.66

0.34) + (1 − 𝑛) (

3

0.34) ≥ 𝑛 ∗ (

1

0.34) + (1 − 𝑛) (5 +

0.66

0.34)

Solved for n:

≈ 𝑛 ≤ 0.65

As long as Norway believe that n is less than 0.65 Norway will stick with Penance and

continue cooperation. If cooperation is to be enforced it would be important for Norway to

ensure that n was as small as possible, and that when the Brazilian preference change

happened there where mechanism in place that avoided it leading to defection.

If Brazil fears a Norwegian preference change the utility functions would be slightly

different seeing as Norway plays Penance. Norway would therefore punish and restore

cooperation after a defection, if their preferences have not changed. These would also be the

Norwegian utility functions if Brazil plays Penance.

𝑢𝐵(𝑐𝑜𝑜𝑝𝑒𝑟𝑎𝑡𝑒) = 𝑛 ∗ (𝑆 +𝑤𝑃

1 − 𝑤) + (1 − 𝑛) (

𝑅

1 − 𝑤)

𝑢𝐵(𝑑𝑒𝑓𝑒𝑐𝑡) = 𝑛 ∗ (𝑃

1 − 𝑤) + (1 − 𝑛) (𝑇 + 𝑤𝑆 +

𝑤2𝑅

1 − 𝑤)

Solved for 𝑢𝐵(𝑐𝑜𝑜𝑝𝑒𝑟𝑎𝑡𝑒) ≥ 𝑢𝐵(𝑑𝑒𝑓𝑒𝑐𝑡) and w at 0.66 gives:

𝑛 ∗ (0.66

0.34) + (1 − 𝑛) (

3

0.34) ≥ 𝑛 ∗ (

1

0.34) + (1 − 𝑛) (5 +

0.662 ∗ 3

0.34)

Solved for n:

≈ 𝑛 ≤ 0

65

Because of the risk of getting payoff S if preferences has changed and Penance

strength in restoring cooperation there must be a 0 chance of preference change for Brazil, or

Norway if Brazil plays Penance, if Brazil is to not have incentive to pre-emptively defect.

This would lead to a dominant strategy of defection if n is believed to be any higher than 0. If

preference change is possible then cooperation cannot be sustained.

To solve this problem, one option might be to establish procedures for recreating an

equilibrium before defection occurs if preference change were to happen, as such removing

any fear of ending up with payoff S in one period. Such procedures could take the form of one

of the approaches presented in section 7.2. For example, if disagreements were to develop, the

parties would bring in a mediator. The parties could agree on what criteria the mediator would

have to fulfil, and what powers the mediator should have. Agreeing on such matters would

have been a lot easier back then, with two players attempting to establish mutually beneficial

cooperation. Many modern trade and investment agreements contain some sort of dispute

resolution mechanism, for example investor-to-state dispute settlement, ISDS. As these have

been considered necessary for such agreements, perhaps they should also in some form be

included in environmental agreements.

The possible approaches also include making defection more painful. Agreed-upon

automatic negative consequences of defection might incentivize the parties to cooperate even

if their preferences change. Assuming that the players aim to maximise their payoffs, a

credible and sufficiently severe punishment should deter defection. This kind of punishment

could take many forms, such as an agreed-upon fine or some other form of financial penalty,

sanctions as presented in section 7.2.3, or suspension of other agreements. In the case of

Norway and Brazil suspension of payments has proven not to be a large enough deterrent. The

current Brazilian government clearly value their sovereignty over the Amazon more (see

chapter 6).

Another option is to restructure the framework of the agreement completely. A

framework of integration is one option that have had some success in avoiding defection. By

making the agreement a continuous process of increased cooperation and mutual benefits

defection is made progressively more difficult as time passes. Consider Brexit which has

taken 4 years and thorough negotiations without being fully completed as of June 2020. In

contrast Brazil's defection took less than a year from Bolsonaro took office. Even though the

EU encompasses many more policy areas and consists of several different nations with

diverging interest, defection and withdrawal remains extremely rare. Clearly the EU is an

66

entirely different type of institution than the Amazon agreement; however, the EU is the

prime example of an integration framework in the world.

Let’s investigate why integration is such a strong force for continued cooperation.

Consider a cooperative organisation consisting of N nations who face two choices regarding

how to continue cooperation, O1 and O2. In our scenario this choice could be between

increased binding commitments to the anti-deforestation efforts or increased national

sovereignty. We assume that integration is an excludable good with complementary

consumption, meaning that, each player’s payoff depends on the number of other players

choosing the same option. There are two different types of countries, type A prefers O1 and

type B prefers O2. If k is the number of other players playing O1, then each players utility

function can be described as a function of their own choice, s, and k (Hvidsten & Hovi, 2015).

𝒖 = 𝒖(𝒔, 𝒌), 𝒘𝒉𝒆𝒓𝒆 𝒔 ∈ {𝑶𝟏, 𝑶𝟐}

Regardless of whether the player is type A or type B, choosing O1 gives a payoff of ck, where

c is a positive constant representing the marginal gain for each country choosing O1.

Choosing O2, on the other hand, gives a payoff of 𝑎 − 𝑐𝑘 for type A and 𝑎 + 𝑏 − 𝑐𝑘 for type

B. a equal the payoff a player received from playing O2, given that this player is type A and

that all other players make the same choice. Likewise, a+b equals the payoff obtained by the

player for choosing O2 if that player is type B and all other players make the same choice

(Hvidsten & Hovi, 2015). Type A players prefer that all players play O1 over all players

playing O2. Type B players have the reverse preference. Moreover, type A players prefer to

be the sole player of O1 over being the sole player of O2, and type B players reverse this

preference. Still, both types prefer to choose the same action as all other players, rather than

going solo (Hvidsten & Hovi, 2015).

𝑢𝐴(𝑂1, 𝑁 − 1) > 𝑢𝐴(𝑂2, 0) > 𝑢𝐴(𝑂1, 0) > 𝑢𝐴(𝑂2, 𝑁 − 1)

𝑢𝐵(𝑂2, 0) > 𝑢𝐵(𝑂1, 𝑁 − 1) > 𝑢𝐵(𝑂2, 𝑁 − 1) > 𝑢𝐵(𝑂1, 0)

Inserting the previous payoff functions give:

67

2𝑐(𝑁 − 1) > 𝑎 + 𝑏 > 𝑐(𝑁 − 1) > 𝑎

𝑎 > 2ensures that no player has a dominant strategy, and that their best response depends on

what the other players choose.

In this model, there are two single-track Pareto-optimal Nash equilibria, in which all

countries converge on either O1 or O2. Moreover, such a single-track solution would be self-

enforcing (Hvidsten & Hovi, 2015). We could also imagine a two-track equilibrium were all

type A players play O1, and all type B plays O2. For such an equilibrium to exist, there must

be a sizeable coalition of type A players, and also a sizeable coalition of type B players. A

twin-track equilibrium might be pareto-dominated by one or even both of the single-track

solutions (Hvidsten & Hovi, 2015).

Integration is an agreement where no party

benefits from violating or withdrawing from the

agreement, given that no other party does so, and this is

achieved without the interference of an external force,

meaning that integration is a self-enforcing agreement

(Grundig, Hovi, Underdal, & Aakre, 2012). I do not

propose an EU for the Amazon, but rather that a different

agreement framework might create different incentives

for cooperation and defection. A problem with the current

agreement is that it it’s static. Meanwhile, the world and

the parties change. If the parties later discover that the

original agreement no longer serves their interest they will defect. A process of integration

avoids this by being dynamic and by adapting to the current problems, example how the EU

survives crisis that looks unsurmountable at the time. A framework of integration also fosters

increased cooperation that serves the parties which can in turn reinforce the party’s preference

for cooperation (Axelrod, 1990, p.85).

Applying this a framework of integration to our case, one could propose that the

deforestation agreement be reformed as an integration process, possibly involving other South

American countries that contains part of the Amazon as well European donor countries like

68

Germany who is also part of the current agreement. Then unilateral defection would be less

likely, even if Brazil had changed preference from the original integration track to another.

This could happen through existing organisations like REDD+ or a partnership Norway,

Germany and organizations where most countries containing the Amazon are members like

Mercosur or Amazon Cooperation Treaty Organization (OCTA), or an entirely new structure.

A framework of integration could be established through the process of mediation and issue

linkage, as linking more and more issues to deforestation cooperation over time could be

considered a continuous process of increased cooperation, in other words integration. If that is

want is needed to save the battle against deforestation in the Amazon one could ask if it would

not be better for it to be an official process rather than ad-hoc crisis solving.

7.4 Conclusion

This chapter has been concerned with the prospects for restoring cooperation, and

whether Brazil’s defection could have been prevented. I have discussed how mediation could

bring negotiations forward, and how a formulative or manipulative mediator might aid in the

endeavour to establish a new equilibrium or a new self-enforcing agreement. Further, I argued

that issue linkage might increase Brazilian payoffs to a point where cooperation once again

becomes the payoff-maximizing option. I also discussed the potential for using sanctions to

decrease Brazil's payoff from defecting.

I argued that the most promising way back to cooperation would be the introduction of

a mediator trusted by both sides, combined with issue linkage. I also advised against

sanctions, because their effectiveness is at best uncertain and because they would likely

increase animosity.

Finally, my focus turned to whether defections could have been avoided with

the aid of other structural additions. Here, I argued that this is important as the uncertainty can

create a situation where defecting becomes a dominant strategy. I pointed out that including a

dispute resolution mechanism as part of the agreement might have enabled disagreement

without defection. Such a mechanism could consist of an agreed-upon mediator, or some

framework inspired by ISDSs. I further argued that an integration framework might enhances

the cost of unilateral defection. Hence, embedding the deforestation agreement in an

integration framework might have prevented Brazil unilateral defection. Envisioning the

Amazon deforestation agreement as part of an integration process is difficult, however I argue

69

that it is important to draw lessons from why this framework is so stable and then apply these

lessons to other agreements in desperate need of stability. In international environmental

regimes defection can cause irreparable damage to the world around us. Therefore, learning

from the agreements that seem to have endurance and lasting popular support is important in

order to avoid defections. The framework of integration might give lessons that can help build

more stable agreements in the future.

70

8.0 Summary and main findings

8.1 Summary

This thesis has concerned itself with the Amazon agreement between Norway and

Brazil. I have focused on how cooperation began, how it was sustained, and how it ended. I

have also considered how cooperation might be restored.

In chapter 2, I established the background for the agreement and the history underlying

Brazil’s defection. I argued that a window for entering cooperation opened when President

Lula faced internal pressure to strengthen his record on environmental issues, especially

concerning the Amazon rainforest. The problem for President Lula was that he lacked the

funds to succeed in combatting deforestation. To create opportunities for international

cooperation, Lula opened for rainforest preservation to be part of REDD+ and invited foreign

countries to contribute. Brazil originally wanted to keep deforestation outside of REDD+ to

preserve their sovereignty over the Amazon. At the same time, the Norwegian government

was also facing internal pressure to strengthen their own environmental record. To make

effective use of financial resources, and possibly also to move focus away from the domestic

oil sector, the Norwegian government s accepted Lula’s invitation with support from major

environmental organizations.

In chapter 3, I argued that Brazil did not want to spend their limited resources on

rainforest conservation without getting the necessary funding from abroad, while Norway did

not want to spend their money on the rainforest unless doing so produced results. Based on

these assumptions, I established a set of preferences for each nation. These preferences create

a classical Prisoner’s Dilemma (PD).

In chapter 4, this PD game was used as the base game of a repeated game to explain

how Brazil and Norway began and sustained their cooperation. I discussed some different

strategies (Grim trigger, Tit for Tat, and Penance) for establishing a self-enforcing agreement

in a repeated PD game. I then argued that the Norwegian were using a strategy that was very

similar to Penance.

In chapter 5, I discussed how Penance performs when playing against various other

strategies. The idea was to demonstrate this strategy’s strengths and weaknesses.

71

Based on the findings concerning the theoretical limitations of Penance, chapter 6 explored

several possible reasons for why the agreement failed. It also attempted to deduce the most

likely reason for Brazil’s defection. I argued that the most likely reason is that the Bolsonaro

government represented a change in Brazilian preferences, a change that undermined the

conditions for Penance to enforce cooperation.

In chapter 7, I discussed different ways to restore cooperation, before turning to a hypothetical

discussion of whether a different design of the agreement could have prevented Brazil’s

defection in the first place.

8.2 Main findings

The overarching research question studied in this thesis is:

What are the conditions (if any) under which the Amazon deforestation agreement

might be made self-enforcing?

I find that the answer to this question is multifaceted. In this thesis I have shown that

when the agreement was first negotiated the preferences created something close to a

traditional repeated PD game. I found that within this framework, Axelrod’s (1981; 1990)

conclusions concerning what type of strategy can best sustain cooperation and maximise

payoffs are correct. Norway’s strategy, which can be approximated by Penance, filled all of

Axelrod’s hallmarks. It was cooperative, retaliatory, forgiving and clear.

Eventually, however, Brazil defected. I argue that this defection, rather than

disproving Axelrod’s theory, was caused by a change in the game itself. Indeed, the most

likely reason for Brazil defection is that a change in Brazil’s preferences took the players out

of the PD framework and created a new game. To restore self-enforcing cooperation, Norway

must either wait for Bolsonaro to be replaced or change Brazil’s incentives in the game, for

example by increasing Brazil’s payoff from cooperation through issue linkage.

I have also considered the possibility of keeping an agreement of the type considered

in this thesis self-enforcing even if one of the party’s interests change. I suggested that some

lessons can be learnt trade agreements and integration processes. Modern trade agreements

often contain something like an ISDS, which allows the parties to settle their differences

without ending the agreement. Although the mechanics of an ISDS might not be directly

transferable to the Amazon agreement, a problem-solving mechanism inspired by it could

72

become part of a new Amazon agreement. Alternatively, the parties could look to integration

frameworks for ideas concerning how to make agreements self-enforcing. At the very least,

this facet of integration processes should be further studied to see what lessons we could be

drawn from them.

73

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Attachments

Attachment 1: Intervjuguide for masteroppgave

Før vi begynner en oppsummering av viktig informasjon. Du har mulighet til å kreve å

bli anonymisert, rette på sitater, eller trekke deg. Dette prosjektet har søkt godkjenning av

NSD og følger de forskningsetiske retningslinjene for samfunnsvitenskap, humaniora, og juss.

På forhånd er det sendt ut et informasjonsskriv om hvilke rettigheter du som intervjudeltaker

har.

• Samtykker du til å delta i intervjuet?

• Samtykker du til å være anonym i materialet?

• Samtykker du til at opplysninger om deg publiseres slik at du kan gjenkjennes ved

navn?

Generelle spørsmål

1. Hvordan vil du beskrive din rolle i arbeidet med Amazonas-avtalen?

2. Hvor lenge har du jobbet med denne avtalen?

3. Vil du karakterisere Norges holdning til denne avtalen som konstant eller skiftende

med tanke på regjeringsbytter siden den ble underskrevet?

Mål: Hva er Norges preferanser?

1. Hva var Norges hovedmotivasjon for å inngå avtalen?

2. Hva vil du si har vært den største fortjenesten av avtalen for Norge?

3. Hvilken betydning har avtalen hatt for Norges internasjonale renomme?

4. Har departementet vært fornøyd med reduksjonen i avskoging frem til 2018?

Mål: Hva er den norske strategien?

1. Avklarte dere fra begynnelsen hva som ville anses som et brudd av avtalen fra Brasils

side?

2. Hvis ja på forrige spørsmål, hva mente dere konstituerte et brudd?

3. Planla dere fra begynnelsen hva slags konsekvens et eventuelt brudd ville gi for

Brasil?

80

4. Har dere fremsatt konkrete krav til hva Brasil må gjøre for at Norge skal gjenoppta

utbetalingene?

Mål: Hvorfor faller avtalen sammen?

1. Kan du beskrive grunnlaget for at Norge har stoppet utbetalingene til Brasil?

2. Har det også tidligere vært konflikter som har gjort at Norge har vurdert å stoppe

utbetalingene?

3. Oppfatter du den brasilianske regjeringen som at de har til hensikt å gjenoppta

samarbeidet med Norge?

4. Hvordan vil du beskrive forskjellen på Bolsonaro-regjeringen og de tidligere

regjeringene i Brasil i regnskogs politikken?

Avslutning

1. Har du noe du ønsker å legge til?

2. Er det noen viktige spørsmål jeg burde ha stilt jeg ikke har stilt deg?