Lechuan Huang on Bates: pp. 194-210 Chain Store Paradox: Bates focuses on the infinity of the model.

Scenario 1: the game has finite turns: the threat from the incumbent to retaliate is not credible; Scenario 2: the game is infinitely repeated (or randomly terminated: the threat is credible. Failure: Brazil did not retaliate in the 1950s as it did in the 1930s. Fallback: Governments may not be willing to incur short-term costs for long-term benefits. The more insecure the government, the more heavily it will discount the future. This argument highlights the pressing need of the Brazilian government for foreign exchange.1 Failure: the Brazilian governments of the 1930s were as insecure as those of the 1950s, but they acted differently. Second fallback: after the World War II, other nations were already into the business; and because the fixed cost for coffee plantation is high, retaliation will not probably drive them out. Domestic politics: The Chicago School of cartel theory fails because the U.S. is not a producer, but rather a consumer, so for the U.S. to endorse the ICO seems irrational. The Realist School argues for political motives. In order to contain Communist threat, it was rational for the U.S. to channel fund to coffee-producing South America by raising the price of coffee. However, this theory fails to explain why the U.S. did not act immediately to the threat. Bates then turns to the U.S. domestic politics, arguing that the executive branch, the Senate, the House of Representatives, were responsible for foreign policy. And there different understanding of communist threat led them to respond differently to the need to support the ICO. With the rise of Castro, as Bates argues, these players re-evaluated the situation, and became more inclined to support the ICO. The only problem is that this part seems to be non-explanation; at least, Bates does not provide us with enough narratives here to demonstrate the shift of attitude. Thornton Wheeler on Bates: pp. 210-228 As indicated on P. 215, Bates looked for models of imperfect competition, which for the most part were inadequate, but the reasons for doing so were helpful in the restructuring of those models. As he wrote on P. 216 and repeated on P. 226, “…economic models of collusion become models of political economy, or, as with the realist school, models of international relations give way to domestic politics.” The ICO was comprised of “… bureaucrats, politicians and firms that used the states to restructure markets.” For example two criteria were met which determined the effectiveness of the ICO in that it had to “…restrict arbitrage between the member and the non-member markets and competition among the producers of coffee.” Figure 5.7 on P. 217 demonstrates that when quotas were in effect, nations, which were members, obtained higher coffee prices. Furthermore, Bates conducted t-tests after calculating both “…the means and variances of coffee prices for both member and non-member states to determine the statistical significance. The variable D which he constructed measures the difference in the mean value of prices in member and non-member markets in each period. If D=0, there is no statistical difference. In his efforts to reject the null hypothesis, the critical range of 2.33 was established which would = a 1/100 chance of occurring in compliance with the requirements of a one-tailed test. If the null hypothesis is to be rejected at the critical range of 2.33, Table 5.6 on P. 219, the t-statistic 5.295 and 6.571 representing the periods the quotas provide clear indication of that rejection. The periods in which quotas were not in effect had minus t-statistic numbers. On P. 228, Bates emphasises the importance of “…moving from historical accounts to analytical narratives: the transformation helps to render such accounts amenable to testing.” Bates conclusion about models is definitive: “Models explicitly separate exogenous from endogenous factors and specify causal links between them. They constitute a claim that changes in exogenous variables should , of necessity generate changes in those which are endogenous.” Figures 5.7 and 5.6 are demonstrative of the exogenous factor “quotas” on the endogenous factor “prices”. The criteria for the application of the quotas at a price floor and a removal of those quotas at a price ceiling are representative of casual links. For discussion purposes, are there other casual links?

Interestingly, Bates does not mention this in his narrative part, meaning that if he goes directly to the most plausible analysis, and omit the preceding ones, we will not be aware of this need for foreign exchange. Is this an example of analysis confining narratives?

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