A Theory of Brinkmanship, Conflicts, and Commitments

Posted: 23 Jun 2008

See all articles by Michael Schwarz

Michael Schwarz

Yahoo! - Yahoo! Research Labs; National Bureau of Economic Research (NBER)

Konstantin Sonin

University of Chicago - Harris School of Public Policy; Higher School of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2008

Abstract

Many conflicts and negotiations can be viewed as dynamic games in which parties have no commitment power. In our model, a potential aggressor demands concessions from a weaker party by threatening war. The absence of commitment makes a continuous stream of transfers a more effective appeasement strategy than a lump-sum transfer. As long as both sides have constant marginal utility of consumption, it is possible to construct a self-enforcing peace agreement even if transfers shift the balance of power. When marginal utility of consumption is decreasing, a self-enforcing peace agreement may not be feasible. The bargaining power of the potential aggressor increases dramatically if she is able to make probabilistic threats, for example, by taking an observable action that leads to war with a positive probability. This “brinkmanship strategy” allows a blackmailer to extract a positive stream of payments from the victim, even if carrying out the threat is harmful to both parties. Our results are applicable to environments ranging from diplomacy to negotiations within or among firms and are aimed to bring together “parallel” investigations in the nature of commitment in economics and political science.

Suggested Citation

Schwarz, Michael and Sonin, Konstantin, A Theory of Brinkmanship, Conflicts, and Commitments (May 2008). The Journal of Law, Economics, & Organization, Vol. 24, Issue 1, pp. 163-183, 2008, Available at SSRN: https://ssrn.com/abstract=1150042 or http://dx.doi.org/10.1093/jleo/ewm038

Michael Schwarz (Contact Author)

Yahoo! - Yahoo! Research Labs ( email )

Sunnyvale, CA 94089

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Konstantin Sonin

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Higher School of Economics ( email )

20 Myasnitskaya street
Moscow, 119017
Russia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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