TCA Srinivasa Raghavan

The Modi-Nitish bargaining game

Updated on: Apr 17, 2013
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Will the Bharatiya Janata Party use Narendra Modi to win the election and then choose someone else as the prime ministerial candidate?

The BJP would like Narendra Modi to lead the party in the next general election. If the BJP manages to get 175 seats or more, he will be its candidate for Prime Minister. It will then dictate terms to its allies in the NDA and, perhaps, others too.

Many in the NDA, which the BJP heads, think this is not acceptable because they see Modi as anti-Muslim. In keeping with this, Nitish Kumar, Chief Minister of Bihar, whose party JD (U) is an important member of the NDA, has formally indicated a “strong” preference for someone other than Modi. This had been known informally for several months.

When asked about this in January this year, a very senior leader from Bihar told this newspaper that there was a strong Bangladeshi immigrant vote in North Bihar which everyone in Bihar was seeking. That is why Nitish is opposed to Modi, he said.

When asked if the BJP and the JD(U) would part ways, he said yes. “We have given them 15 of our seats which we will take back. Even if we win 10-12 of those — which we surely will — that will add to our tally or compensate for what we lose in Karnataka.”

Nitish Kumar has given the BJP time till December to decide finally.

Classic problem

Economists and mathematicians will recognise this as a classic bargaining problem. It has been studied extensively by them in the theory of bargaining.

Practically, every situation in life involves bargaining to reconcile diverging objectives. Bosses and subordinates, wives and husbands, children and parents, unions and managements, companies and governments, countries with each other — it is an endless list.

Everyone involved in the bargaining would prefer to reach some agreement rather than not reach any agreement. So the key problem is how exactly to cooperate.

But everyone also wants the agreement to maximise his or her payoff. Bargaining theory also examines the efficiency of outcomes — delays and/or failure — and their distribution — who gets how much.

Obstinacy in bargaining

One of the key concepts in bargaining is obstinacy. What happens when one or both of the parties — for example, North Korea and the US about nuclear weapons — refuse to budge?

In such situations, it is also hard to distinguish between obstinacy and irrationality. Thus, if it is rational for the P-5 to have nuclear weapons, it is rational for everyone else. So is North Korea rational or obstinate? Or Iran? Or anyone who wants a nuclear weapon?

A twist to this was added by the seminal analysis of Dilip Abreu and Faruk Gul. They analysed situations where not just one but both parties were obstinate.

They concluded that when bargaining frictions are small, an agreement would be reached; if the frictions were large, there would not be any agreement. The latter is precisely true of India and Pakistan.

Another little complication to this was added by other economists. This is called the ‘outside option’.

It is the payoff that will result if bargaining fails. Inside options are payoffs available through bargaining.

Typically, the better the ‘outside’ option available to a bargainer, the better his payoff should be. This is because he has more bargaining power and can expect a better offer in each round to offset the outside option. In the current bargaining between political parties, this outside option could be the so-called Third Front. But we don’t know that yet because the bargaining has just begun.

Who is more obstinate?

Now apply this to the Modi-Nitish problem. How will bargaining proceed in the months to come? Much will depend on how obstinate the JD(U) and BJP are.

Nitish Kumar has been quite clever in telling the BJP to announce its prime minister by December. Such pressure through deadlines is common enough in other forms of bargaining. This creates an artificial pressure on the BJP.

The BJP, meanwhile, has decided that Modi will be its leader but is not announcing his candidature as prime minister. This is because if it gets more than 175 seats, it can have Modi as PM; if it gets much less, it need not do anything. Meanwhile, the outside option is available only to Nitish Kumar (and others in the NDA). Depending on how many seats the BJP wins, they can decide which way to go — NDA or Third Front.

The JD(U) is also playing a game of double bluff. While Nitish Kumar says one thing, Sharad Yadav, in an effort to reduce bargaining friction, says what seems to be the opposite.

This has also been predicted by economists. It helps not to have a reputation for obstinacy so that you can use the outside option only because the other party — the BJP here — is shown to be obstinate. This should be BJP’s strategy as well, to show Nitish as being more obstinate.

But will it adopt it? Will it use Modi to win the election and then choose someone else who is more acceptable to the NDA? Who can that be?

My guess is Jaitley, Arun. But it could actually be any non-Modi BJP person.

Published on April 17, 2013

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