Negotiation Statements with Promise and Threat
Kim, J.Y. Negotiation statements with promise and threat. Rev Econ Design (2021). https://doi.org/10.1007/s10058-021-00261-8
18 Pages Posted: 19 Apr 2019 Last revised: 1 Sep 2021
Date Written: February 9, 2021
A negotiator, in order to achieve her goal, must induce an agent to cooperate. The agent faces costs or risks for cooperating. I develop a game-theoretic model where the negotiator may issue a negotiation statement that contains a threat of punishment for non-cooperation and a promise of reward for cooperation; after which the agent must choose either to cooperate or not. I derive necessary and sufficient conditions under which combining a threat with a promise is effective and credible in inducing the agent's full cooperation. I discuss insights from the model in the context of China-US interaction. My analysis provides a rationale for the use of both promise and threat in negotiations to establish cooperation, increasing the chance of achieving the negotiator's goal.
Keywords: negotiation, cooperation, promises, threats
JEL Classification: C72, D82, F51
Suggested Citation: Suggested Citation