A Theory of Brinkmanship, Conflicts, and Commitments

Journal of Law, Economics, and Organization, Vol. 24, No. 1, pp. 161-183, 2008

24 Pages Posted: 27 Feb 2005 Last revised: 7 May 2017

Michael A. Schwarz

Harvard University - Department of Economics

Konstantin Sonin

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies; Higher School of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: December 20, 2004

Abstract

Many conflicts and negotiations can be viewed as a dynamic game, where parties have no commitment power. In our model, a potential aggressor demands concessions from the weaker party by threatening a war. The absence of commitment makes a continuous stream of transfers a more effective appeasement strategy than a lump sum transfer. Based on such a strategy, it is possible to construct a self-enforcing peace agreement between risk-neutral parties, even if transfers shift the balance of power. When parties are risk-averse, 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, e.g. by taking an observable action that leads to war with 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.

Keywords: brinkmanship, conflicts, commitments, war and peace

JEL Classification: D74, C78

Suggested Citation

Schwarz, Michael A. and Sonin, Konstantin, A Theory of Brinkmanship, Conflicts, and Commitments (December 20, 2004). Journal of Law, Economics, and Organization, Vol. 24, No. 1, pp. 161-183, 2008. Available at SSRN: https://ssrn.com/abstract=673001

Michael A. Schwarz

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-0832 (Phone)
617-495-8570 (Fax)

Konstantin Sonin (Contact Author)

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( 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)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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