A Bribe and Sanction Game with Risk of Extortion, Rally Round The Flag Effect, and Fifth Column Effect

Abstract:     
Many economic sanctions fail because the sanction threat triggers a perverse Rally-Round-the-Flag effect within the domestic politics of the targeted state. Bribes, instead, trigger two opposite effects: a virtuous Fifth-Column effect, by which the bribe elicits support for compliance in the target country, and a vicious extortion effect, according to which the promise of a bribe incites the target to overinvest in the delinquent behavior in the first place with the goal of being bought out of it later. We formalize the three effects using as our workhorse a Ricardo-Viner trade model featuring two domestic factions within the target country: a free trade faction, whose wealth and power would be hurt by a trade sanction but enhanced by greater trade openness, and a protectionist faction, whose economic and political prospects would be inversely affected. The model yields a few crisp results: first, the rally and fifth-column effects affect the likelihood of compliance only in intermediate regimes, that are neither too democratic nor autocratic. Second, sanctioning is not a rational strategy unless Sanctioner has a positive utility for sanctioning. Third, intermediate regimes, when threatened with a sanction, are more likely to defy than other regimes. Fourth, compliance is less likely with security issues than with issues of lesser importance to the Sanctioner. The third and fourth hypotheses are tested on the Hufbauer et al. dataset, along with the boundary condition that states that the model performs better when the Sanctioner has a positive utility for sanctioning.

Number of Pages in PDF File: 55

working papers series