At the risk of being all "time for a little game theory".... it actually is time for a little game theory thread. As a treat.

This is how we think about whether you get coordinated cuts or not

#OOTT

So you've all heard of the prisoner's dilemma, right? If not: Bonnie and Clyde go to jail, the cops put them in separate cells, offer them both reduced sentences if they rat out the other, but full time if they both rat out. The individually rational choice is to rat out.

#OOTT

If you've never seen this video before, it'll also help you



#OOTT

Notice that the point isn't that the people involved can't see that the collectively best result is cooperation, it's simply that they cannot reach that result given the incentives involved.

#OOTT

People keep saying "Well it's in all producers interests to cut, so they will." The 1st part is right, but the 2nd doesn't follow. Climate change is the same: everyone knows what they need to do, but they don't do it because there's no guarantee they won't get shafted.

#OOTT

So how do you solve these problems? Because people do all the time, right? The prison example helps here. How is this real life problem solved? One way is: organised crime

#OOTT

For example, the Mafia has omerta/ "snitches get stitches." Not only is that actual hard penalties for taking a deal, it's also a disciplining/identity/morality thing too, right? Ratting out is "dishonorable". And also incentives: a cut of the deal, better opportunities

#OOTT

So much for Sicily: in international relations, it's more complicated. How do you force other states (Russia) to cut oil production, or China to cut carbon emissions? You can't force them easily.

#OOTT

So you need one or more of:

a credible state to organise things;
sidepayments (fancy word for bribes);
a change of mind in a participants (e.g. KSA thinking it should be "responsible");

In short, the incentives need to be changed.

#OOTT

At the moment, it seems like

KSA will struggle to trust anyone;
the US (the most likely broker) is not very credible;
even if cuts were complied with, the effect might only be small because demand is off a cliff

So an actual deal is hard

#OOTT

Note that there is a big difference between an actual deal and cuts to production. As people are pointing out, storage is filling. If full, production gets cut anyway. But it *not voluntarily*, which is what a deal is about. The only way to *force* cuts is a price war

#OOTT

None of this means a deal is *impossible*, but it does show how hard it is to make one currently. That's what is meant when we talk about leadership - a country taking unilateral action to show good faith and start cooperation

#OOTT