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Threats Without Binding Commitment

Author

Listed:
  • Shavell Steven

    (Harvard Law School)

  • Spier Kathryn E.

    (Kellogg School of Management)

Abstract

This paper explores the power of threats in the absence of binding commitment. The threatener cannot commit to carry out the threat if the victim refuses payment, and cannot commit not to carry out the threat if payment is made. An important assumption of the model is that once the threat is carried out it cannot be repeated. If exercising the threat is costly to the threatener, then the threat cannot succeed in extracting money from the victim. If exercising the threat would benefit the threatener, however, then the threat's success depends upon whether the threat may be repeated after a payment is made. In the equilibrium of a finite-period game, the threat is carried out and the victim makes no payments. In an infinite-horizon game, however, it is an equilibrium for the victim to make a stream of payments over time. The expectation of future payments keeps the threatener from exercising the threat.

Suggested Citation

  • Shavell Steven & Spier Kathryn E., 2002. "Threats Without Binding Commitment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-11, January.
    • Handle: RePEc:bpj:bejeap:v:topics.2:y:2002:i:1:n:2
    DOI: 10.2202/1538-0653.1024
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    Cited by:

    1. Konstantin Sonin, 2008. "A Theory of Brinkmanship, Conflicts, and Commitments," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(1), pages 163-183, May.
    2. Shaun Larcom & Mare Sarr, 2018. "On the Perils of Commitment to Punishment when Criminals Are Strategic," The Journal of Legal Studies, University of Chicago Press, vol. 47(2), pages 391-418.
    3. Chan, Kenneth S. & Laffargue, Jean-Pierre, 2016. "Plunder and tribute in a Malthusian world," Mathematical Social Sciences, Elsevier, vol. 84(C), pages 138-150.
    4. Jack Hirshleifer & Michele Boldrin & David K Levine, 2009. "The Slippery Slope Of Concession," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 197-205, April.
    5. VafaI, Kouroche, 2005. "Abuse of authority and collusion in organizations," European Journal of Political Economy, Elsevier, vol. 21(2), pages 385-405, June.

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