Preferences

Without a doubt “preferences” present one of the most important concepts in political science. At the same time it is also one of the most problematic concepts because of the difficulties of operationalization (Epstein & Mershon, 1996). Surprisingly, the conceptualizations of preferences are rarely discussed in the literature. The following discussion will depict the possible conceptualizations. The exact operationalization of preferences in the framework of this thesis is left to the Chapters 5 and 6.

In the form of the strictest Rational Choice assumptions we assume that rational behavior is consistent with complete and transitive preferences (McCarty & Meirowitz, 2007, p. 6). The process of choice begins with an actor having to pick between a set of actions, which are reflected in the set of outcomes. Assuming that actors have complete information, they will be able to rank actions according to the expected costs and benefits of the outcomes; choosing an action that leads to the best possible outcome (bringing the most benefits) (McCarty &

Meirowitz, 2007, pp. 6-21). The available set of preferences is thus a function of available actions and assumptions about the outcomes of these actions. The requirement of complete preferences means that an actor can determine whether she prefers a to b, or b to a. The requirement of transitive preferences, in turn, means that an actor can rank her preferences in a consistent manner (if the she ranks the outcomes as a>b>c, then we can assume that she also deduces that a>c). Even though this presents a parsimonious model to predict the outcomes of negotiations; many scholars have also suggested the concept of bounded rationality to make the assumptions about the formation of choices more realistic. The concept includes introduction of risk, uncertainty, incomplete information or complexity into the utility functions’ of the actors (Simon, 1972, p. 163).

Transferred to the field of political science, rationalist framework requires that we define the set of actions and the set of outcomes, which we can later rank. This however is rarely done because of the complexity and lack of empirical data. Therefore, many scholars (there are also many exceptions) concentrate on a sample of powerful actors and look at their general interests (as the highest ranked preference). One of the most famous scholars of the European Union, who works within “rationalist framework” is Andrew Moravcsik, who defines preferences as follows (Moravcsik, 1998, p. 20):

“By preferences, I designate not simply a particular set of policy goals but a set of underlying national objectives independent of any particular negotiation to expand exports, to enhance security vis-à-vis a particular threat, or to realize some ideational goal”.

An important remark that Moravcsik makes is that preferences “are exogenous to a specific international political environment” (Moravcsik, 1998, p. 24) and that only strategies can be changed as a response to a particular negotiation environment. Therefore, endogenous variation is not possible (Moravcsik, 1998, p. 25):

“Country A changed its preferences in response to action by country B misuses the term at it is defined here, implying less than consistently rational behavior”.

Nonetheless, it does not mean that the preferences are completely fixed; they are varying depending on the country or the issue. The change is possible through an exogenous shock that reveals new information (as for example the breakdown of the Soviet Union that has decreased the concerns about the Soviet threat) (Moravcsik, 1998, p. 28). In this vein, Moravcsik deduces from geo-political theories that “Germany [is] the most favorable to integration, France less so, Britain least so” (Moravcsik, 1998, p. 28). Another prediction based on economic interests is that

“in trade and agriculture positions vary by producer concerns, with more regionally competitive producers favoring liberalization” (Moravcsik, 1998, p. 28). However, in the energy context both of the predictions cannot explain the empirical observation (see in particular Chapter 6): Britain pushing for liberalization and integration of the energy market, Germany partially resisting (even though there was pressure from producers) and France resisting the most (even though it was beneficial for producers to liberalize). In particularly, from this framework it is not clear whether energy policy is a geo-political concern or a trade issue – an important conceptual decision that has to be made to apply Moravcsik’s framework.

The assumption that preferences do not vary endogenously was in particularly criticized by Rainer Eising in his article in International Organization. Eising concluded that to explain the observed outputs of electricity market liberalization, it makes more sense to assume that preferences are not fixed (Eising, 2002, p. 86):

“Instead, I assume that the policy preferences of member states are not fixed, and I regard their preferences over the main organizing principle of the domestic sector—competition or monopoly—as their basic policy preferences. These general preferences inform more specific preferences about the policy proposals discussed in EU negotiations.”

In Eising’s framework the preferences thus vary across issues and across countries and in response to the environment. Contrary to Moravcsik’s framework, a country can change its preferences towards a certain issue because it gets new information, for instance through more frequent meetings of the European Council (Eising, 2002, p. 111).

The definitions by Moravcsik and Eising reflect the general debate in social sciences on whether to assume endogenous or exogenous preferences in the choice functions (Cohen & Axelrod, 1984; Gerber & Jackson, 1993). I argue that in fact both Moravscik and Eising could be right even though they seem to use quite different terminology. I am convinced that the main problem is an inconsistent usage of the terms preferences and choice (their exact definitions are not always clear because of the lack of formal or explicit representation). My interpretation of preference (no matter whether it is represented as binary choice or as a utility function) is that it essentially represents a mechanism for choice (also as a part of interpretation of how Moravcsik and Eising define preferences). As long as this mechanism is fixed (in the rational choice the utility maximization function), it satisfies the requirements of rational behavior, no matter whether it contains endogenous or exogenous elements. What Eising on the other hand describes as preferences could be analyzed within Moravscik’s framework as strategy, i.e. a particular choice given certain negotiation settings. What Moravscik describes as exogenous shock could be also defined as an aggregated output of endogenous processes. This is possible as long as the scholars do not clearly define the exogenous and endogenous systems and the respective variables contained in this system (they just offer selective examples). To make my argument clear, I will return to the context of the second energy package. Eising claims that Moravscik’s framework cannot explain the outputs of the second energy package because at the beginning of

the negotiations the preferences of the member states significantly differed from the final outputs. This is, however, not necessarily true because what we could observe at the end of negotiations are not necessary preferences but rather choices. Therefore, within the Moravscik’s framework we could argue that the member states changed their strategies as a result of certain institutional settings that changed the payoffs for certain outcomes. On the other hand, Moravscik’s framework might also suggest that there was an exogenous shock altering the preferences of the member states such as the change in the energy market structure. This, in turn, could be explained as a result of aggregated choices of member states that started to liberalize their energy market (because of previous negotiations). The point I am trying to make clear is that the assumptions about the preferences should go hand in hand with the assumptions regarding the time dimensions of negotiations. Moravcsik actually assumes that at the beginning of negotiations the preferences are formed endogenously (depending on the geo-strategic and economic interests) and only after this formation process are they fixed unless there is an exogenous shock.

Most scholars treat preferences as exogenous because endogenous preferences in a dynamic setting make the outcomes less predictable (Gerber & Jackson, 1993, p. 653) and therefore might significantly decrease the parsimony of a model. There are, however, no boundaries in depicting utility function in a dynamic setting, where utility at time t depends on the utility at time t-1 (Cohen & Axelrod, 1984) or the voting preference at time t depends on the shifts in the party positions a time t-1 (Gerber & Jackson, 1993). What might cause the confusion is that scholars denote the output of the utility functions at different time periods as changes in preferences. I think that in particularly in political science this might lead to confusion. Given that the utility function remains constant (so the general mechanism of choice), we can assume that the preferences are fixed but that we can observe the changes of choices. Moreover, if the policy-making process is disaggregated into many different time steps, we can assume that most of the dynamics in the choices will be explained by endogenous factors, but we can also introduce a term that will occasionally account for external shocks and thus represent endogenous changes.

The previous debate shows the complexity that might arise if we start thinking of negotiations in a dynamic setting. I seek to be much more explicit about the underlying assumptions than the previous scholars by disaggregating policy process into three steps as depicted in the Table 2. I agree with Moravcsik that at the beginning we might assume certain distribution of preferences depending on the issue of interest. Then we have to specify the choice function, which as discussed might contain endogenous as well as exogenous factors. Finally, it is also plausible to assume that in particularly in the setting of the European Union there is a certain path-dependence and thus the choices at time point T2 also depend on the choice at time point T1.

Time Assumption

T0 (before negotiations start) Initial preferences deduced by cost benefit analysis depending on the set of actions (specified during operationalization)

T1 (choice) The choice depends on the choice function that

includes endogenous and exogenous elements

T2 (choice) Depending on choice in T1 and the choice

function

Table 2 Assumptions about preferences

This complex setting of preferences won’t allow useful prediction regarding the exact output of aggregated choices. This is why most scholars still prefer to stick to less dynamic settings.

Nonetheless, if the major research interest lies in the explanatory factors of the dynamics, it might be very useful as it will allow for testing different parameters and different combinations of parameters on the dynamics of the overall process. Therefore, I conclude with the following assumptions:

Assumption 2: Before negotiations preferences are built through cost benefit analysis on the set of possible actions.

Assumptions 3: During negotiations choices are made based on the choice function that includes endogenous and exogenous elements.

More importantly, the hypothesis 1 deduced in Chapter 3.2.2 can now be further specified as it was suggested that in Rational Choice framework it makes more sense to speak of change of choices instead of change of preferences:

Hypothesis 1a: Changes in choices of the majority of the member states (depending on the decision-rule) lead to changes in the policy output (keeping other factors constant).