A Theory of Brinkmanship, Conflicts, and Commitments

24 Pages Posted: 4 Aug 2005

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 2005

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, commitments, conflicts, war and peace

JEL Classification: C78, D74

Suggested Citation

Schwarz, Michael and Sonin, Konstantin, A Theory of Brinkmanship, Conflicts, and Commitments (May 2005). CEPR Discussion Paper No. 5075, Available at SSRN: https://ssrn.com/abstract=776627

Michael Schwarz

Yahoo! - Yahoo! Research Labs ( email )

Sunnyvale, CA 94089

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Konstantin Sonin (Contact Author)

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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