Working Paper: CEPR ID: DP5075
Authors: Michael Schwarz; Konstantin Sonin
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; peace
JEL Codes: C78; D74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of commitment power in negotiations (D74) | continuous stream of transfers is a more effective appeasement strategy (F16) |
| structure of transfers (F16) | feasibility of self-enforcing peace agreements (D74) |
| risk aversion (D81) | feasibility of self-enforcing peace agreements (D74) |
| ability to make probabilistic threats (D80) | bargaining power of potential aggressor (D74) |
| bargaining power of potential aggressor (D74) | victim's willingness to appease (D74) |
| risk aversion (D81) | self-enforcing peace agreements (D74) |