South Africa: Illegal Mining and Game Theory
South Africa is a country famous for its abundance of mineral resources and its reserves remain some of the world’s most valuable. With the sector being an important foreign exchange earner, it is thus not surprising that South Africa’s economy is built on gold and diamond mining. So what could possibly ruin the party? Cue in illegal mining. The Department of Mineral Resources estimates annual losses from illegal mining at about $500 million. According to Nico Pienaar, Aggregate and Sand Producers Association of Southern Africa (Aspasa) director, “By cutting corners, avoiding statutory costs and abusing people and the environment, illegal miners can gain a substantial cost advantage, which impacts on the profitability of legitimate mines and at worst can force legal operations to close down”. In light of this problem, the Department of Mineral Resources (DMR) established an illegal mining committee, comprising regulatory authorities, industry role-players and unions.
So where does game theory come into play, one might wonder. Well, how about a standoff between the South African government and illegal gold miners trapped underground in an abandoned mine shaft in Benoni, not far from Johannesburg. The shaft had partly collapsed and rescue services were on the scene. However, with its crackdown on illegal mining, the government arrested any miners who made it to the surface and those remaining underground insisted they would rather die. The government was clearly on the horns of a dilemma. It couldn’t just let them die but also couldn’t let them go. Oxford University sociologist Michael Biggs put the prisoners into three types: the bluffer, who “is willing to endure temporary starvation in order to gain a concession, but prefers surrender to death”; the sacrificial prisoner, who “prefers to surrender to no hunger strike, but prefers a concession to death”; and the resolute prisoner, who prefers death to surrender but would rather end the protest than die. As for the government, he divided it into two types: the conciliatory, which would rather concede than allow the prisoners to die, and the intransigent, whose preferences are the other way around.
The equilibrium solutions are pretty straightforward, but that’s assuming full information. For example, if the government knows that the prisoner is bluffing and the prisoner knows that the government is intransigent, the prisoner will surrender. If on the other hand the government knows that the prisoner is sacrificial, and the government knows that the prisoner is resolute, the illegal miners will succeed. However, in the real world, neither side likely knows what type the other is, at least at the beginning. The parties therefore must signal to each other. According to theorists, the greater the cost of the signal, the more reliably information is conveyed. Thus, the government persistence in arresting each miner who emerges signals its intransigence, whatever its fallback position is. Similarly, even if the miners are bluffing, the longer they stay in the mine and risk death, the stronger the signal that they are actually sacrificial, and willing to die.
Each side is making a huge bet that the other side will surrender first. Hunger strikes often succeed in democratic countries precisely because the government cannot afford the hit to its reputation that a long hunger strike often entails and the illegal miners are betting on that. However, even a democratic government can’t simply give in every time those it targets with imprisonment threaten to die. It’s tricky, but vital, to find the balance between conciliation and intransigence. On the other hand, the miners risking death for the sake of gold feels less admirable than sacrificing for a noble cause. In other words, the miners could have been bluffing. Whatever the outcome, it is interesting how game theory manifests in real life. I must admit some stakes, like in this case can be pretty high but parties employ strategies that they think offer the best outcome for them.
Sources: http://www.miningweekly.com/article/illegal-mining-in-south-africa-a-growing-problem-that-has-to-be-stopped-2013-08-16/rep_id:3650
http://www.southafrica.info/business/economy/sectors/mining.htm#.V-AF1JgrKUk
https://www.bloomberg.com/view/articles/2014-02-20/life-death-and-game-theory-in-south-africa