The Value of Economic Incentives in International Politics

Author(s): Eileen M. Crumm

Source: Journal of Peace Research, Vol. 32, No. 3 (Aug., 1995), pp. 313-330
Published by: Sage Publications, Ltd.
Stable URL: https://www.jstor.org/stable/425667
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 ? Journal of Peace Research, vol. 32, no. 3, 1995, pp. 313-330

The Value of Economic Incentives in

International Politics

EILEEN M. CRUMM
School of International Relations, University of Southern California

This essay presents a preliminary model of the factors that influence the value of positive and negative
economic incentives in international politics. The first part of the article is a review of prior research
findings on incentive value. It integrates several lines of research and organizes the findings into five
categories that form the frame of a model of incentive value; target market characteristics, target
political structure, characteristics of goods, world market conditions and sender state political structure.
Since the studies used to create this frame focus primarily on negative incentives, the second part of the
study tries to balance this bias with insights from cases of positive incentives. This analysis suggests some
original points; it finds that capital goods are less useful as repeated rewards and that relational norms
may affect the value of an incentive. The inductive portion of the analysis also highlights a major
difference between negative and positive incentives. For while market forces work against limiting
access to substitutes in negative incentives and thus decrease their value, limited alternatives were found
to contribute to the value of positive incentives.

1. The End of the Cold War
One consequence of the end of the Cold
War is a renewed consideration of induce-
ments and sanctions as tools of statecraft.
Prompted by persuasive research findings
that democracies are less likely to use war as military machine. Rather, starting with the
a tool of statecraft (i.e. Doyle, 1983; Lake, assumption that more valuable incentives
1992; Maoz & Abdolali, 1989) and argu-
ments that war itself is obsolete (Mueller,
1988), academics and policy-makers are re-
evaluating economic incentives as ways to
resolve disputes and influence outcomes.
The sanctions against Iraq, IMF con-
ditionality and the democratic change
required for US aid to Russia are just a few
examples of the use of economic incen-
tives. Economic incentives refer to thefies,
vision, denial, promise or threat of goods
and services in an attempt to influence the
attitudes and behavior of another actor
(Baldwin, 1985; Dahl, 1970)). This category
encompasses such phenomena as con-
ditionality, sanctions, quid pro quos, econ-
omic warfare, and leverage - all of which
have spawned substantial literature. But
while scholars have analyzed incentives of
these various types, they have not framed
the topic of their research in a larger cate-
gory, like incentives, and have rarely made
connections or comparisons between differ-
ent types of incentive strategies.
This article departs from most work on
incentives because it is not a policy evalu-
ation of these tools for a particular case,
such as their ability to induce democratic
changes in Moscow or to weaken the Iraqi
are more likely to achieve policy goals,2 I
take one step back from the immediate
consequences of incentive use and develop
systematic and predictable ways in which
variations in an incentive event (such as the
type of good used as an incentive) can alter
the value that a target actor (the actor faced
with an incentive) assigns to an incentive in
international politics. This analysis identi-
pro-organizes and integrates factors that
earlier scholars identified as significant to
incentive value into an initial model.3 But
since much of this earlier work focuses
solely on negative incentives (such as sanc-
tions and economic warfare), the model
derived from this work is skewed toward
negative incentives. To correct for possible
bias arising from this concentration, I aug-
ment the model of incentive value with
original, inductive findings from cases of
positive incentives drawn from Soviet-
Indian relations from the period 1953-83 to
create a framework that applies to as well as
differentiates between the two types of

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314 Eileen M. Crumm

incentive. In the interest of broad generaliz- export market, cut across some of these
ability, the framework I present is over- differences to systematically alter the value
determined for any specific case because it is of incentives.
intended to provide a rich starting-point for States with diversified markets are better
the analysis of incentives in international positioned to supply domestic substitutes for
politics. The variable set can and should be embargoed goods than targets with nar-
narrowed to those which are causally signifi- rower economic bases (Renwick, 1981). The
cant for any case of interest. In doing so, the availability of domestic substitutes de-
analyst should reverse the commonplace creases the value of negative incentives,
procedure of international relations scholars because a sanction inflicts less hardship on a
who work from the international system state that has the capability to provide
inward in their quest for explanation. The embargoed goods for itself than it does on a
dominant determinants of value of an incen- state that lacks that capability. A parallel
tive lie inside the target state, in the target'spoint can be made about boycotts of
economic capabilities and its political ability exports.
to shift costs and benefits which largely The state with a diversified export profile
determine the elite perception of value. The is advantaged in two ways. First, the diversi-
other factors examined here, which are fied exporter will be more able to shift its
located outside the domestic arena of the sales to alternative markets because it is less
target state, can be seen as constraints or likely to have a narrowly specialized pro-
enhancements of these factors and often duct, and industries within the boycotted
only affect certain classes of target states. state are more likely to possess the market-
ing expertise and experience to expand
exports elsewhere. Second, the logistics of
2. Incentive Value in the Existing Literature maintaining a boycott are much easier for a
The greatest attention paid to the value of single actor than for a large group, which
an incentive is in comparative case studies of means that a boycott of a state with a single
sanctions, and these owe their greatest intel- market is a more powerful incentive than
lectual debt to economics.4 Most of the find- the boycott of a state with numerous
ings refer to factors that affect either the markets. Thus, in both its export and
target's demand for the offered good or the domestic industrial profile, diversification in
availability of alternative supplies or substi- a target state means that negative incentives
tutes. I organize these findings into five have a lower value.
somewhat overlapping groups; target actor As a proxy for these two factors, the level
domestic market characteristics, target actor of demand and the availability of substi-
political structure, characteristics of goods tutes, a number of authors use a target's
and services used as incentives, world degree of dependence on goods and services
market conditions and sender state political from/to the sender state(s) as a measure of
structure. incentive value. Degree of dependence has
frequently been operationalized as the pro-
2.1 The Target State's Economy portion of GNP (or total exports, or total
The base level of incentive value begins with imports, or total aid) that the incentive rep-
the target's demand for the goods and ser- resents.5 Despite widespread use of this
vices that are being offered or denied. proxy, it has been critiqued as an inaccurate
Scholarly research, as well as common representation of the value of an incentive
sense, suggests that all goods and services on two counts; first, this measure does not
are not equally valuable to all states because establish the relative value of an incentive-
of demand differences, which is related to linked option compared to other policy
the target state's level of development choices available to the target government
(Kindleberger, 1970). However, researchers (Baldwin, 1985); and, second, it fails to
argue that the degree of diversification of register the ability of the target state to com-
the domestic market, as well as the state's pensate for the effects of incentives.

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 Economic incentives in International Politics 315

Wagner (1988) makes the first point when in better condition (Hufbauer et al., 1985).
he distinguishes market power which is a One explanation of this result is that such
result of the elasticity of supply and de- states are less able to shift costs or consump-
mand, from bargaining power which is the tion patterns, or contain the political acti-
relative evaluation by governments of the vism of negatively affected societal groups.
consequences of interrupting trade. Market Researchers have found that even intense
power, which is measured by dependency incentive use, such as in economic warfare,
indicators, fails to contrast the value of the may merely lead to civilian suffering without
incentive with the alternatives available to policy changes when a political elite is able
to protect itself from public pressure
state leaders. Some governments may prefer
to allow citizens to bear the cost of an incen- (F0rland, 1993).
tive rather than comply with the sender. The importance of regime type is also
The second point is related to the first, stressed in studies of conditional positive
because it is not just the incentive value incentives, except in these cases the leader-
ship
relative to alternatives that is significant, it is is not worried about the activities of
also the ability of the target state to diminish
groups disadvantaged by a negative incen-
the impact of sanctions. Keohane & Nye tive but rather that of groups hurt by the
(1977, pp. 12-19) base the distinction be- policy changes required to gain a positive
tween vulnerability and sensitivity inter- incentive. Kahler (1992, p. 120) notes that
dependence on precisely this factor. Bayard for the implementation of conditionality, or
et al. (1983) apply this point directly to sanc- aid flows dependent on target policy
tions, noting that while the gap between changes, 'political resistance to adjustment
domestic production and consumption cap- from groups that will suffer costs poses the
tured by measures of dependence is import- knottiest issues for countries who are
ant, it fails to reflect the degree of difficulty attempting to further the resisted changes'.
in changing consumption and production An elite able to mobilize and shift resources
patterns, and states that easily accommo- (Galtung, 1967) or successfully and safely
date negative incentives will evaluate them concentrate costs on a disenfranchised sub-
as less damaging. One component to ca- group feels the effect of incentives or
pacity shifting has already been discussed, required policy changes less than one that
degree of target industrial diversification. does not have these abilities. Thus the
But this ability is dependent on more than ability of the state to compensate for or
the target's industrial base. Capacity shifting control incentive effects, which is influenced
clearly points to the importance of the by the target's political regime type as well
political structure, or regime type of target as its economic and political health, can
which influences the political costs target alter the value a state assigns to an incen-
decision-makers will have to pay for their tive. These findings indicate, as a gross con-
choices. clusion, that democratic regimes should be
easier to influence than authoritarian ones.
2.2 The Target State's Political System However, I suggest that the relationship is
Extending economic theories of the state more complex and that the ability to influ-
suggests that the insulation of government ence using incentives is also affected by the
leaders against potential rivals who might type of good or service used as an incentive.
court groups negatively affected by capacity
shifting, and the cost of political activism for 2.3 Characteristics of Goods and Services
affected groups influences the willingness Scholars have looked at the effect particular
and ability of target leaders to bear costs of goods and services have on incentive value,
negative incentives by shifting those costs to although not in interaction with regime
subnational groups (Kaempfer & Lowen- type. For example, Paarlberg (1985) argues
berg, 1990). Studies found that states that that food is a difficult good to use as an
are economically or politically unstable are international incentive. First, the fungibility
easier to influence with sanctions than those of international markets means that alterna-

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316 Eileen M. Crumm

tives to embargoed food are widely avail- embargo, the elite can shift the costs to
able, which weakens the value that the other groups in the society by rationing
target assigns an incentive. Second, the TVs, CD-players and VCRs to the politi-
intrinsic importance of foodstuffs to a wide cally important. But a currency destabiliz-
variety of groups within both the target and ation would have widespread effects on the
sender's economy results in a high level of target economy. Here, protecting politically
interest group involvement in foreign policy significant domestic interest groups from the
formation when the issue concerns either effects of the negative incentive is virtually
the provision or acquisition of foodstuffs. impossible. While target leaders may try to
Broad interest group involvement motivates compensate these groups for their losses,
target actors to immunize themselves the widespread nature of these effects would
against the use of food incentives by increas-make such a policy more costly. This in-
ing its self-reliance and denies the sender creases the desirability of complying with
the capacity to use this tool because of the the sender of the sanction relative to other
objections from its domestic interest groups. policy choices.
It is arguable that foodstuffs are actually Conversely, given the same set of political
part of a larger category of goods, those circumstances in a target state, a private and
which are important to a substantial portionfungible good will make a superior positive
of population in the target. The disadvan- incentive. With a positive incentive, the
tage of such goods, a group that includes sender wants to maximize the benefit to the
quasi-public or public goods (i.e. goods that target and the most valuable incentives are
are non-excludable and non-divisible) such those which allow the target to use the
as food or financial incentives, is that they incentive for whatever purpose will give the
may become non-viable as incentives after greatest return (which might mean concen-
limited or initial use because the employ- trating those benefits on the politically privi-
ment of these goods as incentives unleashes leged). This is possible with a good that can
popular pressure in the target state to insu- be divided up into smaller pieces, but not
late itself. However, this insulation cannot with a public good, and is easier with a
usually be accomplished immediately; for fungible good (like money) than with one
example, a state cannot become self- that is not. Private, fungible goods can be
sufficient in food production overnight. And particularly valuable to their recipients for
at least in their initial use, high salience they allow the target to concentrate the
means that these goods make superior nega- resources on whatever activity will bring the
tive incentives because their widespread recipient the highest benefit. As discussed
effects limit the ability of elites to shift costs above, authoritarian states are most likely
and insulate themselves from the impact of to have a capability to insulate their elite;
incentives. Importantly, this characteristic therefore private, fungible goods make
has different repercussions for positive than better positive inducements while public
it has for negative incentives, because such and quasi-public goods are better negative
goods make poor positive incentives. This sanctions for authoritarian states. Since it is
point can be illustrated with an example. more difficult to devise sanctions that are
Assume that target decision-makers have quasi-public in nature, it is arguable that a
both the desire and the capability to shift positive incentive of a private, fungible good
costs away from politically significant groups (such as foreign aid) is a preferable incen-
with most classes of negative incentives. In tive strategy with authoritarian targets.
these circumstances, an incentive whose
effect is impossible or too costly to shift will 2.4 World Market Conditions
have greater value as a negative incentive A fourth set of factors identified in the exist-
for this group of decision-makers. For ing literature focuses on the ways in which
example, compare an electronics embargo international market conditions can alter
with an action that destabilizes the value of incentive value. Like domestic diversifi-
the target's currency. With an electronics cation, these variables relate to the avail-

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 Economic Incentives in International Politics 317

ability of substitutes and alternative sourcesimpossible to get a target to take sanctions

of supply of the good or service used as an seriously; Mastanduno (1988) came to simi-
incentive. All else being equal, the more lar conclusions in a study of trade restric-
restrictive the supply of a good or service tions. As a result, attention in the sanction
(and substitutes) the more valuable the literature frequently focuses on enforcing
incentive. However, as scholars of negative cooperation, the problems of cheating, and
economic sanctions have noted, maintaining the disproportionate share of costs borne
control over supply is a problem for senders. by frontline states (Doxey, 1971, 1980).
For negative incentives, the economist's Martin (1992), drawing on the cooperation
conclusion is: given the fungibility and ef- literature, argues that the theories applied
ficiency of world commodity markets, the to cooperation in general are also applicable
conditions under which sanctions can inflict to explaining the ability of states to cooper-
economic hardship on a target actor are ate on sanctions. Thus the ability of the
limited. Other non-cooperating suppliers sender to get cooperation from other
will respond to the price increases caused bysources of supply also contributes to the
sanctions to supply the embargoed goods value of an incentive.
(Bayard et al., 1983) and transshipment of
goods can nullify the effect of sanctions 2.5 Sender State Characteristics
(Willet & Jalaighajar, 1983). Since the best However, authors have noted that for econ-
case is when the sender of an incentive is a omic sanctions, control over supply is
monopolist, scholars point to the relatively related not only to market structure and in-
high incentive value of specialized products, ternational cooperation but also to the
such as spare parts for military aircraft political ability of the sender to restrict its
(Shoemaker & Spanier, 1984), where this own exports. Knorr (1977, 1982) argues that
market structure is more likely. capitalist countries are handicapped in this
Limited alternatives also increase the regard because economic assets are under
value of positive inducements. In the case of private control, where communist states
IMF and World Bank conditionality, this have command of the state's economic
has focused on the availability of alternative assets. Along similar lines, Krasner (1977,
financing, which has fluctuated with the 1982) notes that states with a concentration
world economy. Stallings (1992, p. 61) notes of power and authority, again such as single
a periodization in these conditions. In the party states, are privileged in this regard.
1970s the climate favored the borrower, Krasner contends that the worst case is that
which resulted in developing states getting of less-developed states, who face the dual
commercial loans with no policy require- difficulties of a limited resource base and
ments. But the tide turned in the 1980s as weak domestic political system. They thus
lenders coordinated their approaches, and are able to mobilize only small amounts of
from 1982 to 1985 there was a concerted resources for state purposes, such as sanc-
approach which meant that heavily- tion implementation. But the domestic
indebted governments had little opportunity structure of the state employing the incen-
to improve the terms being offered since tive can be significant not only in the ability
lenders could not be played off against each to carry through on an incentive, it can also
other. affect the credibility that target actors assign
Since the availability of substitutes influ- that sender's promises or threats. When a
ences incentive value, and conventional sender does not have complete control over
wisdom indicates that monopolist control its resources the target may believe that
over products is rare, cooperation between actual delivery of an incentive is improbable
states becomes a major factor in assuring and discount the value of the incentive
incentive value. Mayall (1984) argues that accordingly (Schelling, 1966).
therefore the decision to impose sanctions is Likewise, political and economic stability
inseparable from the decision to persuade may also affect sender credibility. If a
other states to cooperate, for otherwise it is sender is politically unstable, credibility of

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318 Eileen M. Crumm

offers and threats is diminished, for the
sender's leadership may not remain in
control long enough to follow through on a
sanction. There is no guarantee that the suc-
cessor government will feel it necessary to Soviet Union as the sender state, as the
follow through on its predecessor's promisesliterature indicated that in this case prob-
or threats. A somewhat parallel argument lems with credibility would be least likely to
can be made as to the effect of economic
instability, because targets interpret the
promises and threats (that would impose
costs on the sender) of a poor sender with
economic problems as less credible than
those of a sender with a rich and stable
resource base. Put simply, an actor under-
going economic hardship has less of a
chance in following through on sanctions
than an actor with a plenitude of resources. seemed the most appropriate given these
A target is likely to incorporate this into its parameters.6 Through intensive study of
calculation of incentive value and discount
accordingly. The exception to this general
statement is when the negative incentive
entails the cessation of a benefits stream
(such as aid), where imposing the negative
incentive will actually be a cost saving for
the sender. In this case, sender economic
troubles may solidify the target's belief that
the sender will follow through on an incen-
tive.
This review illustrates that while schol-
ars have not systematically addressed the
question of which factors can influence the
value that a target assigns an incentive, they
have made a considerable number of obser-
vations about factors that influence target
perceptions of value in studies that have
focused on other issues.
3. Inductive Findings on Incentive Value
However, as can be seen in that review,
most of these insights come from studies of
sanctions and may be biased. This section is
intended to complement those findings by
presenting inductively derived factors that
alter incentive value drawn from cases of
positive incentives use.
3.1 The Cases
Before moving on to the inductive findings
on incentive value, I want to provide a quick
overview of the rationale behind case selec-
tion as well as some of the content of the
cases. As mentioned above, the empirical
portion of this analysis consists of case
studies of the Soviet use of incentives with
India between 1953 and 1983. I use the
confound other factors that influence incen-
tive value. Next, I narrowed the search to
an extended aid/trade relationship because
such a relationship was likely to yield a large
number of cases. Finally, I was looking for a
relationship that varied over time in target
compliance in order to fix those factors that
both increase and decrease the value of
incentives. The Soviet-Indian relationship
case material, I identified a total of 40 cases
of incentive use by the Soviet Union toward
India.7 The Soviets had at least moderate
success in achieving their goals in 22 of those
cases, in the other 18 there was little or no
success.
Moscow used incentives for a variety of
goals in these cases. In many of these cases,
Indian and Soviet policy preferences were
close, but India lacked the capability to pur-
sue a desired policy without Soviet help.
Examples include the Cold War motivated
aim of weaning India away from the West,
and limiting US influence in India. In pur-
suit of this goal the Kremlin encouraged
public sector development of the economy
to restrict Western involvement in it, as well
as to decrease Indian dependence on West-
ern trade. The Soviets also sponsored inde-
pendent Indian development in petroleum
and pharmaceuticals, two industries domi-
nated by Western multinationals. A second
major tool of this strategy consisted of mili-
tary arms sales. Over time, and despite re-
sistance from the Indian parliament and
armed forces, the Soviets replaced the West
as India's source of military material using
incentives. These arms sales restricted
Western influence on Indian policy as well
as helped to pay for Soviet imports from
India.
In other instances, the Soviets were trying
to induce India to act against an expressed
Indian preference. As expected, the level of

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 Economic Incentives in International Politics 319

success for these cases was lower. The services have affected that value. The sec-
Soviets successfully pushed particular con- ond finding refers to the ability to use goods
ditions on the Bokaro steel plant construc- and services repeatedly over time. The case
tion and maintained the special Soviet- studies indicate that some goods, such as
Indian friendship when the Janata party capital goods, lost their punch as incentives
came into power in India in 1977. But Mos- over time, while others, like oil and military
cow failed to gain Indian cooperation de- arms, were able to retain their value as
spite incentives on the policy of Asianincentives. The second point discusses ex-
collective security or on the Nuclear Non-
planations of this difference.
proliferation Treaty. Nor did incentives
cause India to increase its purchases of 3.2.1 Norms and Incentive Value
Soviet capital goods in 1983. The first issue concerns the role of relational
Moscow's attempts to influence India norms in a target's calculations of the
were comprised primarily of positive incen- expected value of an incentive. Norms rep-
resent an informal or formal consensus
tives. Positive incentives generally consisted
of the provision of scarce goods or services about standards of behavior between two or
or the provision of goods and services at more actors. Operationalization of informal
concessionary terms (less than current world norms is quite difficult. Generally, scholars
market). Examples include sales of desir- have deduced implicit norms from the pat-
able but hard to get high-tech military terned behavior of states, but this process
equipment, gifts of needed commodities has generated serious disagreements on how
(like wheat or oil) and concessionary terms the norms and principles of a given situation
of trade. In each incentive incident, I sought should be defined (Haggard & Simmons,
to discover how valuable the good or service 1987).
was to the target and why the good or ser- In this study, however, norms are oper-
vice was seen as valuable or not. The dis- ationally defined as a formal consensus,
cussion of the findings on incentive value, specifically, the publicly promulgated and
and the relationship of these findings to accepted codes of behavior between two
prior insights on incentive value, is the topic states. Generally, such a restrictive oper-
of the remainder of this article. This dis- ational definition is difficult to apply to
cussion is organized into two parts reflecting interstate relations, as it is rare that states
the structure set out at the beginning of this proclaim the normative bases of their re-
work, characteristics of goods and world lationships. In addition, when explicitly
market conditions. established, it is arguable that norms have a
more profound effect on a relationship, for
3.2 Characteristics of Goods such explicit communication makes norm vi-
As seen in the literature review, few authors olations easier to detect and enables explicit
have asked whether specific characteristics discussion about the scope of applicability of
of the goods used as incentives might sys- rules (Kratochwil, 1989, p. 56).
tematically affect the value that targets In the Soviet-Indian case, the two states
assign to those incentives. However, this explicitly agreed to relational norms on a
analysis of Indo-Soviet relations finds two number of occasions. In total there were five
characteristics of goods and services that can explicit norms - mutual respect for sover-
affect their value as incentives. First, case eignty, non-aggression, non-interference,
findings suggest that the value of goods can equality and mutual benefit, and peaceful
be altered by how they fit in with relational coexistence. They were publicly affirmed by
norms between the sender and target. While India and the Soviet Union in the Indo-
scholars have noted that sanctions have Soviet joint statement of 23 June 1955 and
symbolic value (Baldwin, 1985; Lindsay, reaffirmed on numerous occasions, notably
1986), none have looked at how the in Article 6 of the 1971 Indo-Soviet treaty.
presence or lack of congruence between re- However, not all of these standards are
lational norms and the choice of goods and directly applicable to the aid and trade

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320 Eileen M. Crumm

relations examined in the case studies. discernible difference in the relationship

Rather, three are relevant and formed part because of its normative content, and that
of what Datar described as basic character- impact is not attributable to its relatively
istics of the economic relationship (1972, minor
pp.market value.
10-13). These three somewhat overlapping The second way that relational norms
norms are equality, non-interference in influenced perceptions of value is when
domestic affairs and aid with no strings Soviet actions violated those norms. There
attached. are a couple of examples of this effect, the
Studies of the Indo-Soviet relationship most important is a case that revolved
suggest these norms might have two effectsaround conditions for the construction of
the Bokaro steel mill in 1965. Indian leaders
on perceptions of value. Scholars report that
the value of incentives reaffirming norms were relieved when the Soviets stepped in to
was seen as higher than its 'market' value. fund the plant after US presidential support
Second, when aid/trade interactions vio- for the project was blocked by the US Con-
lated normative prescriptions, it appeared gress. However, this elation was short-lived
to help reduce the value of subsequent and relations soon soured as the Soviets vi-
olated two important normative underpin-
incentives for India. On the first point, there
are a number of incentives that fit this nings of the relationship, the norm of
description of having greater than market equality of the partners as well as that of aid
value because of compliance with norms. with no strings attached. Problems began
But the clearest example of this process is a when the Soviets insisted on undesirable
case that occurred in 1954-6, when the conditions in the construction of the plant
USSR aided private firms in India. This aid and severely limited Indian participation in
consisted of technical assistance and the design of the facility. Before this time,
deferred payment terms to private firms like the Soviets had a good reputation in India
Panna Diamond Mining and Hindustan for treating the Indians as equal partners by
Gas, as well as to the overwhelmingly priva- having indigenous design firms work on
tely controlled Indian coal industry. The projects and employing both Indians and
monetary value of these loans was relatively Soviets in supervisory roles. But with Bok-
low, but the impact of this incentive was aro, Moscow insisted on control of the
substantial. The effect of this incentive is design and refused to accept a prior Indian
usually attributed to the symbolic value as- government agreement with an Indian firm
sociated with this incentive, a symbolic for the major portion of design (Barnds,
value that arises from its congruence with 1972).
the proclaimed norms of the relationship. The Soviets even rejected an Indian plan
For analysts note these incentives had value that suggested ways that the cost of the
as signals for India (Kidron, 1965; Stein, project could be reduced. Beyond the fact
1969), because by aiding private sector com- that this aid explicitly had strings attached
panies when Moscow favored public sector (violating one norm), the specific content of
industries the Soviets signaled their accept- the conditions violated the norm of equality
ance for the Indian social status quo and because the Soviets overruled the Indian de-
mixed economic system. This gave added cision for indigenous design work. India
weight to Soviet proclamations of non-inter- accepted Soviet terms of Bokaro because
ference in Indian domestic affairs. In there was no alternative to Moscow's assist-
essence, aid to private firms reduced Indian ance (Desai, 1972). The USSR achieved its
uncertainty about future Soviet behavior goal but its actions 'created considerable
with relation to Indian domestic affairs. This controversy in the press and Parliament in
was significant because initially Indian India' (Barnds, 1972, p. 38). As a result of
leaders were quite suspicious of Soviet goals Soviet insistence on specific conditions, 'the
toward India, and were unwilling to accept debate on this issue has remained animated
early offers of assistance from the USSR and detrimental to the Soviet image in
(Singh, 1986, p. 14). This incentive made a India' (Desai, 1972, p. 86).

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 Economic Incentives in International Politics 321

It is arguable whether this contributed to trade strike (Singh, 1986, p. 2()3). The
a decline in the attractiveness of Soviet capi- Soviets suspended shipments of goods and
tal goods in India in the 1960s. Here it is
difficult to delineate precisely how import- in an attempt to get India to buy substan-
ant norm violation was, as during this time
Indian leaders were growing increasingly
disenchanted with Soviet-built enterprises;
economic problems with Soviet-aided en-
terprises became a public issue in India.
Together they had a substantial effect.
There was an immediate reaction in the aid
and trade data that suggests a definite drop
in the attractiveness of Soviet goods. Indian
drawdowns of Soviet aid dropped from
USD 136 million in 1964-5 to USD 59 mil-
lion in 1965-66. Soviet exports to India
goods as incentives. Unlike capital goods,
dropped by 8.4%/ between 1964 and 1965.
military arms were readily accepted and
This was the first decline since 1960.8 Indian
drawdowns of Soviet aid continued to drop,
as did Soviet exports to India until 1971, the
period of the Indo-Pakistani war. In argu-
ing for the effect of norm violation, it is
significant to note that these drops preceded
the time that problems with Soviet-aided
industries became a public issue in India,
and that India pointedly expressed its disap-
proval of Soviet tactics in the implemen-
tation of Bokaro when they refused the
Soviet offer of participation in the second
stage of construction in 1977 (Donaldson,
1979). These data suggest that violation of
norms might be a factor that decreased the
value of future incentives from that sender.
However, cases where norms had an indi-
vidually viable effect are needed to make
the individual claim for norms more persua-
sive.
3.2.2 Capital Goods and Redundanc'y
A second finding on characteristics of goods
resurrects the idea that certain goods per-
form badly when used repeatedly as in-
centives, while others can do quite well.
Leading the list of poor performers in these
case studies are Soviet capital goods. As
noted above, Soviet capital goods lost their
attractiveness to India after the mid-1960s.
This situation became so extreme that in
1983, in an attempt to get India to use devel-
opment credits to purchase the capital
goods, Moscow tried to compel Indian pur-
chases by using the negative incentive of a
withdrew as purchasers from Indian markets
tially larger quantities of Soviet capital
goods. Despite the fact that the event
caused considerable disruption in Indian
markets, particularly in those enterprises set
up for trade with the Eastern bloc, the
Soviets were only able to extract a promise
that India would try to purchase more
Soviet machinery in the future.
The pattern of incentive value associated
with capital goods is in dramatic contrast to
that of military assistance. Like capital
goods, the USSR repeatedly used these
often avidly pursued by India. These incen-
tives held their value, and in some cases in-
creased in value, despite the fact that they
were used repeatedly over time. The differ-
ence in these patterns raises two questions:
why did Soviet capital goods lose their value
for India after the late 1960s? and why did
military goods remain attractive throughout
the period under study?
The explanation of why Soviet capital
goods dramatically decreased in value for
India is a complex one. It is in part the story
of how a sender inadvertently reduced the
attractiveness of some of its repertoire of
incentives by replicating its own industrial
capabilities in the target. But this is but one
of three reasons given by analysts for the
value decline of Soviet capital goods after
the late 1960s. The first of these reasons is
that India underwent a preference change in
the goods desired for development as the
state itself advanced economically. The
shabby performance of India's Soviet built
industries mentioned above is the second
reason for the decline in the attractiveness
of Soviet capital goods. After the late 1960s,
many Soviet-aided public sector industries
(producing products like electrical equip-
ment, steel and machinery for factories)
were running heavily in the red. Even
though many Soviet-funded industries
began to turn a modest profit by the early
1970s (in part because of Soviet interven-
tion), the well publicized problems of the

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322 Eileen M. Crumm

late 1960s decreased the attractiveness of had been built with Soviet assistance.
the USSR as a source of development This replication was worsened by the lack
capital. of technological innovation in Soviet pro-
The final reason for the value decline is duct lines, which meant that the Soviets had
the one of particular interest here. An few new capital goods to offer. Indian paral-
emphasis on India's gaining self-sufficiency lel development, combined with the narrow
through developing basic sectors with Soviet and stagnant Soviet industrial base, caused
assistance, a characteristic that made Soviet the Soviets to experience resource depletion
assistance attractive to India in the early as an influencer using incentives, in part as a
result of the acceptance of their earlier
part of the relationship, is the same one that
caused Soviet capital goods to lose their incentives. The situation was summed up by
value later on. A substantial portion of an Indian press report in 1983, when the
Soviet assistance went toward developing Soviets were pressuring India to increase
'basic' sectors of Indian industry, including her imports of capital goods after India de-
steel, power, machine building and defense. clined a Soviet offer of two nuclear power
This, in and of itself, is not a problem. plants, four thermal power plants and oil
Rather, the difficulty arises when this type refineries. The journalist explained: 'The
of aid policy is used as a source of positivemain problem is that . . . India is now in a
incentives in attempts to influence behavior. position to either indigenously manufacture
This is precisely what Moscow tried to do.the kind of capital goods that the Soviet
Throughout this process of iterated econ- Union can supply or prefers Japanese or
omic incentives, the Soviets replicated in Western substitutes' (Indian Economic
India the same industrial capacities that the Diary, 18-24 June 1983, p. 9498).
Soviets possessed themselves. After 1970, While the Soviet economic system made
there was a 'technical mismatch' between the problem particularly acute, the poten-
the kinds of aid India needed and what the tially generalizable lesson is that iterated
Soviets were able to give (Veit, 1976). The rewards of development assistance (or other
Heavy Electrical Plant at Hardwar, the goods that help a state develop productive
Heavy Machine Building Plant at Ranchi capacity) can be self-terminating, as the
and the Mining and Allied Machinery Plant incentive goods of the sender become
at Burgapur, which were built with Soviet redundant. The characteristic that initially
assistance, produced capital goods of Soviet increased the attractiveness of Soviet incen-
specification and design. India possessed tives, the focus on making India self-
perfect domestic substitutes for these Soviet sufficient, later made those same goods and
goods. And, as noted in the literature services decrease in value, as India had be-
review, the availability of domestic substi- come self-sufficient in those sectors.
tutes decreases the desirability of the
incentive. 3.2.3 Military Assistance and Non-durable
This is especially true in this case, since Goods
the industries where domestic substitutes Given this finding, the Soviet repeated use
would come from were operating at a loss. of military weapons represents something of
India had an added incentive to use Indian a puzzle, since on the surface the pattern of
public sector products rather than imported military aid shares many of the character-
Soviet capital goods, and this caused India istics that hurt Soviet capital goods as a
to reject Soviet offers. For example, in 1973 repeated incentive. As in the case of Soviet
the Indian Planning Commission proposed capital goods, the Soviets aided India in de-
to obtain Soviet assistance for the expansion veloping the capacity to produce goods that
of existing and construction of new power the Soviets initially supplied to India. Start-
generation facilities, but the Ministry of ing in the early 1960s, the Soviets granted
Power and Irrigation objected on the basis India licenses to produce certain classes of
that this equipment could be obtained from these goods (e.g. MIGs) and thus, as with
India's own public sector enterprises, which Soviet capital goods, they created redun-

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 Economic Incentives in International Politics 323

dancy to Soviet capabilities. However, there
are a number of important differences be-
tween military and other goods that the
Soviets used repeatedly as incentives. First,
India did not replicate Soviet industrial ca-
pacity for all classes of military assistance.
There are certain items (particularly those Soviet designs.
for the Navy) that were seen as too costly to
produce in India. Therefore India has a con- this comparison is that grants of redundant
tinued need to import such goods from the
Soviets, even though India has not always
been comfortable with being dependent on
the Soviet Union for supplies and period-
ically has been reported to be stockpiling
spare parts against a possible interruption of repeated rewards, non-durable goods
supplies.
Second, even in areas where the Soviets
helped India to develop its own weapons
production facilities, these goods did not
face the general problem of redundancy and
obsolescence faced by other Soviet capital
goods. This is because the Soviet military
industry progressed and developed more
than other Soviet industries. Scholars argue
that Soviet defense industries did not ex-
perience the same degree of stagnation as
other industrial sectors in the USSR because
not only did the defense sector draw the
cream of the economy it also faced external
competition that spurred innovation and
change. In short, Soviet military assistance
was simply a more competitive product than
were other Soviet capital goods.
Where the financial advantage to India of
Soviet capital goods was to use her own
underutilized domestic sources, the finan-
cial advantage in choosing between the
Soviet Union and outside competitors like
the USA was to stick with Soviet equipment
when upgrading Soviet-aided defense indus-
tries. Soviet patterns of production and de-
velopment proved an advantage in using this
as a repeated incentive. Soviet weaponry
progresses in evolutionary rather than revo-
lutionary steps, so there were cost savings in
staying with Soviet designs, particularly
when a large number of parts carried over
from one design to the next (Chari, 1979, p.
239). In contrast, Western advances in mili-
tary technology tended to be revolutionary,
based on entirely new designs. Beyond the
fact that the Western states were stingier
with licenses for Indian domestic produc-
tion, for India to produce a new Western
design would involve costly retooling of
facilities. Therefore, as long as Soviet
weaponry was technologically adequate,
costs could be minimized by staying with
One potentially generalizable lesson from
capacity are less dangerous in sectors where
technology is advancing rapidly, rather than
in mature manufactures, where the techno-
logical base is stable. This is because these
goods fall into a class that makes better
(goods with a short useful life span). The
short life span of such goods dampens what
is normally a detrimental effect of using
goods repeatedly as incentives. The big
problem with repeatedly using positive in-
ducements is maintaining the value of incen-
tives over time. In psychology, this has been
conceptualized as a process of adaptation,
while in economics it is reflected in the as-
sumption of decreasing marginal utility.
Both fields argue that a target assigns de-
creasing value to subsequent units of a good
or service. Psychological research on indi-
viduals suggests that, because of this
phenomenon, incentive strategies are most
effective when the sanction departs strongly
from the past experience of the target
(Buckman & Campbell, 1971, p. 290).
While much of the research on this process
has consisted of studies of individuals, Gold-
stein & Freeman (1990, p. 4) made a simi-
lar finding in their study of strategy reci-
procity between the USA, USSR and PRC.
These authors concluded that there is a need
to make cooperative initiatives out of the
ordinary in order to overcome psychological
resistance and policy inertia. In short,
research suggests that incentives are most
effective when they are new and different or
come as a surprise for other reasons. Iter-
ated incentive strategies are thus at an
obvious disadvantage. The problem be-
comes how to maintain the value of incen-
tives when necessity or policy mandates that
they are used repeatedly.
The sender may try to combat this prob-
lem by varying the goods that it uses as

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324 Eileen M. Crumm

incentives. But this is not always possible (i.e.

forwith no hard currency expenditure)
every sender, as some have narrow indus- retained a high value over time. The Soviets
trial bases and the target may only desire a first sold crude oil to India in 1977, made a
few of the goods that the sender has avail- further offer in 1979, and in 1980 Brezhnev
able. Another option is to take a cue from agreed to expand oil sales by one million
psychological studies of behavioral con- tons per year. Rather than having gone
ditioning which advocate manipulation of down in value, this last offer was jubilantly
reinforcement schedules. Psychologists have received by India.
found, for example, that a greater frequency Some scholars have noted that rewards of
of reinforcement is needed to acquire coop- certain non-durable goods even create
eration than to continue cooperation. They dependence, by inducing increased demand
have also found that desired behavior con- on the part of the target while simul-
tinues longer after the removal of stimulus taneously limiting the availability of substi-
when the target has been sporadically, tutes. Hirschman (1945, 1980) discusses a
rather than continuously, reinforced. This variety of such methods in terms of trade
combats adaptation and reduces the relations, such as exporting highly differen-
sender's expenditure of resources.9 While tiatedingoods to create production and con-
theory this seems a promising alternative, sumptionin habits. This is a persuasive part of
practice it would probably prove infeasible the explanation of how the Soviet-Indian
for states. It is difficult to imagine a state relationship successfully survived the
bureaucracy that operates on standard pro- change from the Congress to the Janata
cedures being able to successfully manage a party in 1977. Before the election, the
sporadic reinforcement strategy. Janata party had made statements indicating
A third strategy is to keep increasing the that it would follow 'true non-alignment'
quantity or quality of the offered incentive. aand abrogate the 1971 Indo-Soviet treaty.
The consequence of this strategy is an esca- One reason the Janata party proved unwill-
lating price tag for obtaining target cooper- ing to follow through on these campaign
ation. Assuming finite resources, a sender promises was 'the significance of the Soviet
will find it difficult to underwrite the increas- Union as a supplier of arms and components
ing costs of getting that target to comply. A for India's defense industry' (Thomas, 1978,
final possibility is to use non-durable goods p. 741). In part, the dependence created by
in policies of repeated rewards. Non- earlier acceptance of incentives made the
durable goods or services have only a short planned break too costly.
time lag before they are needed again and In summary, in the Soviet-Indian re-
thus valued again by the target. In other lationship, oil and military assistance held
words, the target's demand for these items their value as repeated incentives better
repeatedly shifts to a position where these than Soviet capital goods. This analysis
goods have high utility. For example, a reviewed the particular reasons why each
sender uses spare parts for advanced mili- class of goods either retained or lost its
tary aircraft as an initial incentive. The tar- value to India over time. It is argued that
get uses up those parts and soon needs more two of those reasons are characteristics of
to keep the planes flying. As a second incen- goods that may be generalizable to the
tive at this point, spare parts are again quite repeated use of positive incentives. First,
a desirable commodity. This arguably could goods that enable the target to replicate the
be the case with certain classes of military sender's industrial capabilities can reduce
assistance as well as with oil products that the ability of that sender to influence this
the USSR used as incentives, because as target with incentives for the sender's 'goods
they were consumed India's demand for the basket' becomes redundant with that of the
goods was again high. For example, target. This is less of a problem in sectors
although India's desire for Soviet crude where technology is advancing rapidly than
oil was exacerbated by external market in mature manufactures, where technologi-
changes, oil in exchange for Indian goods cal advancement is stagnant or stable. Sec-

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 Economic Incentives in International Politics 325

ond, non-durable goods (like oil and spare Indian tea and jute in 1953 was concluded at
parts) make better iterated incentives thana time when India was facing a slack market
do durable goods (like factories), because for those products. The proposal to buy
their short life leads to repeated upward steel from the Bhilai steel mill in 1968 was
made when there were few other buyers
shifts in the target's demand for these items.
interested. Likewise, the 1977 agreement to
3.3 World Market Conditions exchange oil for iron and steel came at a
The final case study observation is about a time when India was finding it difficult to
different part of the incentive condition, thesell her surplus ferrous metals on the inter-
international economic environment that national market.
incentives take place within. The case study
In fact, the pattern of development assist-
results agree with previous findings that ance that the Soviets offered as incentives
suggests that the Soviets specifically tar-
availability of alternatives is a significant
geted their offers at sectors or industries
contributor to incentive value. But where
that the USA or World Bank was unwilling
studies of negative sanction argue that only
to support
rarely can substitutes be limited because of at that time. For example, the
the fungibility and efficiency of worldSoviets
com- used as incentives offers of assist-
ance for Indian public sector development
modity markets, this study finds a different
in theIn
empirical pattern for positive incentives. second and third five-year plan. Since
a large percentage of the identified incentive Western aid for public sector development
events, India faced limited alternatives and (such as the steel or power industries) was
this enhanced values in two distinct ways. not forthcoming for this aspect of Indian de-
First, incentives had a higher market value velopment, one analyst asserted that this aid
when the incentives offered gave India was regarded as valuable beyond its nominal
alternatives in fields that had been under the cash price (Veit 1976, p. 173). In 1972, the
exclusive control of other external actors. Soviets provided India with a list of indus-
Long (1991, p. 176) notes that states of- tries in which the Soviets were willing to
ten employ such positive incentives to cooperate. Previously the aid in most of
strengthen an ally or decrease its vulner- these areas had been available only from the
ability to a common adversary. A major USA, but had been cut off when the USA
source of value of early Soviet aid offers was had suspended aid during the 1971 war. As
that, in presenting an alternative to Western one Indian official told the press at the time,
aid sources, the Soviets forced Western 'Soon India will be swamped with Soviet
states to grant India more concessionary aid, experts and advisors but we don't have
terms. Soviet entry dramatically altered the much of a choice' (New York Times, 12
alternatives India faced in crucial economic December 1972). The Soviets maximized
sectors which had been dominated by West- the value of their limited assistance by con-
ern firms, notably pharmaceuticals and oil. centrating their aid on areas where India
Soviet assistance in these areas was worth had little alternative to the Soviet Union.
more than its nominal price because these As mentioned above, the area where
offers enabled India to negotiate price re- India had the most consistent trouble find-
ductions from Western firms, reductions ing reliable substitutes for Soviet goods was
that earlier had not been forthcoming to in the realm of military assistance. Anglo-
India. US reluctance to supply weapons was the
In addition to breaking the monopoly reason India increasingly relied on the
control of other actors over India, the sec- USSR for supplies, 'it was basically the non-
ond way that limited alternatives enhanced availability of Western arms that led to
incentive value was when the Soviets India's shift toward the Soviet Union' in the
addressed areas where India had either early 1960s (Chari, 1979, p. 234). This view
limited or no alternative to Soviet offers. is reinforced by a number of reports that
For example, the Soviet offer to barter India sought to obtain military materials
Soviet farm and industrial equipment for from the USA before or even while nego-

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326 Eileen M. Crumm

tiating with the Soviets. 1() However,because

the alternative sources of aid are
USA was disinterested in providing India scarce, while the same is not true of many
with an alternative to Soviet arms and other commodities. Again, aid is a case
India's alternatives were further restricted where a concession is offered by the sender
by two policies of the USA. The first was actor.
the In conclusion, the case data reaffirm
decision to embargo arms sales to the sub- limited substitutes as a major component of
continent after 1965. The second was the incentive value but argue that, for positive
occasional exertion of US influence to pre- incentives, limited substitutes are more
vent third states from selling arms to India. common than earlier studies might suggest.
For example, a 1978 Swedish sale of the
SAAB-37 Viggen was stopped because the
USA held the patent for the engine and 4. Conclusions
vetoed the transfer, claiming that this This article supports the idea that incentives
transfer might upset the balance between are an increasing relevant form of economic
Pakistan and India. In fact, the high value statecraft
of in the post-Cold War world, as it
military aid here is a result of US Cold War shows that there are ways that incentives,
politics backfiring, because by limiting particularly positive incentives, can be tail-
external alternatives to the Soviet Union, ored to increase their value for target states.
the USA actually increased the value of Developing this argument brings together
Soviet aid. While India followed a policy of several disparate lines of research and com-
pursuing independence by creating domestic bines them with insights from a series of
arms industries, indigenous production had case studies to create a preliminary model of
not met India's needs. As noted earlier, factors that alters incentive values in inter-
some classes of military goods were prohibi- national politics (Table I).
tively expensive and even those manufac- This first part of the work draws together
tured by India required some reliance on insights from a variety of literature on the
external suppliers for certain parts like topic of incentive value. These highlight the
engine components and braking systems influence of a target's domestic level of de-
(Menon, 1978). velopment and economic diversity, the tar-
The incentives used by the Soviets with get's ability to shift costs and consumption
India were not goods that were widely avail- patterns and the availability of alternatives
able from other sources. This suggests that on an incentive's value. In a few cases, these
for positive incentives there is a greater findings were logically combined to reveal
possibility of using restricted availability as a original insights about incentive value, such
means of enhancing the value of incentives. as the possibility of using public (or quasi-
Where market forces work against negative public) goods as negative sanctions to de-
sanctions, they can reinforce positive ones. crease the ability of the target to shift costs
When the sales of a good are cut off by a and the advantages of using private,
negative sanction like an embargo, there is fungible goods as positive incentives to
an incentive for another supplier to provide enhance that ability.
the desired goods, particularly since restric- The second portion of the work is a comp-
ted supplies can substantially increase the lement to earlier studies intended to balance
price of the embargoed goods. However, out the stress on negative incentives. The
since a positive incentive represents a con- empirical material focused on the Soviet-
cession to the target there is no automatic Indian relationship, in which a large number
reason that other suppliers would want to of positive incentives were used. In examin-
offer a similar concession to the target. ing why incentives had a value different
Lindsay (1986) made a similar observation from their nominal price, three important
in the conclusions of his work on trade sanc- variables were uncovered. This study found
tions. He argued that the reason that studies that incentives that conformed to relation-
in economic aid incentives found them to be ship norms were valued above their 'market
more effective than trade sanctions is price' because they served as a signal as to

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 Economic Incentives in International Politics 327

Table I. Variables that Can Affect Incentive Value

I. Target State Characteristics

1.1 Economic characteristics

1.1.1 Level of development and resource base influences demand

1.1.2 Industrial diversification affects the availability of substitutes
1.1.3 Economic health alters demand

1.2. Political characteristics

1.2.1 Insulation from rival groups affects ability to shift costs to politically insignificant groups
1.2.2 Costs of political activism alter the viability of interest group activity against either sanctions or compliant
behavior required to get incentives
1.2.3 Political instability decreases an elite's ability to shift costs and stifle political activism

2. C'haracteristiks of Goods and Services

2.1 High specialization limits alternative sources

2.2 Wide range of interest groups affected limits usability of a good as an incentive
2.3 Public and quasi-public goods are superior negative incentives since they limit the ability of decision-makers
to shift costs away from politically significant groups
2.4 Private and fungible groups are superior positive incentives since they maximize the target's ability to use the
incentive for whatever purpose brings the greatest return

3. World Market Conditions

3.1 Availability of substitutes decreases the value of incentives
3.2 Ability to gain international cooperation limits the availability of substitutes

4. Sender State Characteristics

4.1 Sender control over economy increases the value of an incentive

4.2 Sender political and economic instability decreases the credibility of an incentive, except when the incentive
represents a cost savings to the sender

the future behavior of the actors and ings suggest that non-durable goods, or
reduced uncertainty. Incentives that viol- goods in areas of rapidly changing tech-
ated relational norms also arguably had an nology, are superior repeated rewards
effect on future relations, but that effect was because they maintain a higher utility due to
a negative one. the fact that their short life leads to repeated
Case analysis suggests that non-durable shifts in the target's demand for these items.
goods and capital goods in sectors of evolv- The final observation from the case
ing technology made better repeated incen- studies reinforces the conclusions of earlier
tives than durable goods or capital goods in studies as well as shows that there is a bias in
sectors with stable technology. When the an incentive value model based solely on
Soviets used the second type with India, innegative sanctions. In the Soviet use of
the form of capital goods for machine build-incentives with India, as in studies of nega-
ing, they replicated their own industrial tive sanctions, incentives with limited or no
capabilities in India and inadvertently de- alternatives were perceived as having a high
creased their ability to use these goods as value. However, in these cases of positive
incentives, since over time India was able to incentives, unlike in earlier studies, limited
manufacture these goods itself. These find- or no alternatives was a frequent occur-

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328 Eileen M. Crumm

rence. Observations in other studies of posi-extrinsic rewards). See Baron (1988, pp. 101-103)
and Deci & Ryan (1985, pp. 44-48) for reviews of
tive incentives, such as conditionality or
these findings.
foreign aid, echo the fact that the avail- 5. The first use was in Hirschman (1945). However,
ability of rewards can be more easily restric- many others have employed this similar measure as
ted than the flow of embargoed goods. well. For example, see Hufbauer et al. (1985).
6. A partial listing includes Siegel (1968), Stein
Incentives of various types, whether they
(1969), Datar (1972), Remnek (1975), Donaldson
be studies of conditionality or economic
(1979), Horn (1982) and Duncan (1989).
warfare, are most often studied as individual 7. A sample case is appendixed to this essay and a
cases or as a group within their small cate- detailed list of all cases is available from the
author.
gory. This analysis shows that incentives of
8. Trade figures calculated from Vneshniaia Torgovlia
all these diverse types are affected by a simi-
SSSR, aid figures calculated from Government of
lar set of variables. For the theorist, this
India, External Assistance and Economic Survey,
highlights both the need and the advantage various years.
of building bridges between the subfields 9. For the insights of operant conditioning, see
that concentrate on these smaller categories Baldwin & Baldwin (1981), especially chapters 13,
14.
of incentives as a means of advancing under-
10. For example, see Chari (1979) on MIG nego-
standing of all these categories of behavior. tiations or Kavic (1967) on submarines.
For the policy-maker, the findings of this
study suggest that incentive policies can be
tailored to maximize their impact on the tar- REFERENCES
get actor. While increasing the value of the Baldwin, David A., 1985. Economic Statecraft. Prince-
incentive does not guarantee policy success, ton, NJ: Princeton University Press.
Baldwin, John D. & Janice I. Baldwin, 1981. Behavior
this stresses that there are ways that policy-
Principles in Everyday Life. Englewood Cliffs, NJ:
makers can make their incentives more Prentice Hall.
valuable, and thus more likely to achieve Barnds. William, J.. 1972. 'Moscow and South Asia'.
their goals. Problems of Commnunism, vol. 21. May/June, pp.
12-31.
Baron, Jonathan, 1988. Thinking and Deciding. Cam-
bridge: Cambridge University Press.
NOTES
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330 Eileen M. Crumm

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APPENDIX A: Sample Case Material crisis in 1956-7 and reportedly made many concessions
This is a sample of the case material the analysis is to Western pressures for greater private involvement in
based on. A complete listing of the 40 cases is available the economy. Not everything was conceded to Western
from the author. views during the 1956-7 exchange crisis. In particular,
(a) the Indian government retained the right to main-
AID FOR SECOND FIVE-YEAR PLAN 1956-7 tain the core of the plan, (b) insisted on the right to
Soviet Goals: 1. The timing of the announcement, right break any foreign monopoly. 3. Soviet exports jumped
in the midst of the Hungarian crisis, suggests that the considerably in 1957-8 and then dropped again. But
Soviets intended to remind India of the importance of Soviet aid utilized by India accounted for S of India's
the Soviet Union to India's industrialization plans. 2. imports between 1956/7 and 1960/1, and X between
The Soviets continued to encourage India's public 1961/2 and 1965/6.

EILEEN M. CRUMM, b. 1959, PhD in Political Science (University of Pennsylvania, 1990); Fellow,
Hoover Institute, Stanford University (1994-95); Assistant Professor of International Relations,
University of Southern California (1990- ). Current research interests: international economic incen-
tives, the contextualization of rational choice arguments, and economic transformation in post-
communist states.

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