Threats and Promises

32 Pages Posted: 4 Apr 2011

See all articles by Jonathan Eaton

Jonathan Eaton

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Maxim Engers

University of Virginia - Department of Economics

Date Written: September 1994

Abstract

Global environmental concerns have increased the sensitivity of governments and other parties to the actions of those outside their national jurisdiction. Parties have tried to extend influence extraterritorially both by promising to reward desired behavior and by threatening to punish undesired behavior. If information were perfect, the Coase theorem would suggest that either method of seeking influence could provide an efficient outcome. If the parties in question have incomplete information about each other's costs and benefits from different actions, however, either method can be costly, both to those seeking influence and in terms of overall efficiency. We compare various methods of seeking influence. A particular issue is dissembling: taking an action to mislead the other party about the cost or benefit of that action. By creating an incentive to dissemble, attempts to influence another's behavior can have the perverse effect of actually encouraging the action that one is trying to discourage.

Suggested Citation

Eaton, Jonathan and Engers, Maxim P., Threats and Promises (September 1994). NBER Working Paper No. w4849, Available at SSRN: https://ssrn.com/abstract=1801668

Jonathan Eaton (Contact Author)

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

608 Kern Graduate Building
University Park, PA 16802-3306
United States
814-865-8871 (Phone)

Maxim P. Engers

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States
804-924-3130 (Phone)
804-924-7659 (Fax)

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