Threats Without Binding Commitment
Harvard Law School; National Bureau of Economic Research (NBER)
Kathryn E. Spier
Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)
NBER Working Paper No. w5461
This paper explores the power of threats in the absence of binding commitment. The threatener cannot commit to carrying out the threat if the victim refuses payment, and cannot commit to not carrying out the threat if payment is made. If exercising the threat is costly to the threatener, then the threat cannot succeed in extracting money from the victim. If exercising the threat would benefit the threatener, however, then the threat's success depends upon whether the threat may be repeated. In the equilibrium of a finite-period game, the threat is carried out and the victim makes no payments. In an infinite-horizon game, however, it is an equilibrium for the victim to make a stream of payments over time. The expectation of future payments keeps the threatener from exercising the threat.
Number of Pages in PDF File: 20working papers series
Date posted: April 25, 1998
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