Dividing the Oils: Dynamic Bargaining as Policy Formation in the Nigerian Petroleum Industry

In academic studies of the interface between developing countries and large multinational oil corporations, scholars have noted that over time and through repeated interaction, the developing countries tend to negotiate better outcomes for themselves: they progress along a learning curve by incrementally improving their outcomes through bargaining and strategic interaction. This phenomenon can be demonstrated in a number of oil‐rich developing countries. Nigeria's case, however, is more complex. During the two decades following its independence, the state successfully negotiated for more control over—made strides in the developing of the skills necessary to manage—its petroleum industry, as our model would predict. Then, in a puzzling late‐1970s‐to‐mid‐1980s change of course, the government abruptly gave back concessions, undermined local entrepreneurial endeavors, and repealed indigenization laws. This paper combines, in the analytic narrative tradition, the case study method with an extensive form game; it applies a dynamic bargaining model to Nigeria's historical experience, demonstrating that Nigeria improved its outcomes and ascended along the “bargaining learning curve,” only to reverse policy and “unlearn,” with serious consequences for the Nigerian population. Even so, the demonstration of both successful and improved outcomes in past negotiations give evidence that Nigeria could once again ascend its bargaining learning curve if the government were to re‐commit to such a policy.