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Optimism and commitment: an elementary theory of bargaining and war

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  • Clara Ponsati

    ()

  • Santiago Sanchez-Pages

    ()

Abstract

We propose an elementary theory of wars fought by fully rational contenders. Two parties play a Markov game that combines stages of bargaining with stages where one side has the ability to impose surrender on the other. Under uncertainty and incomplete information, in the unique equilibrium of the game, long confrontations occur: war arises when reality disappoints initial (rational) optimism, and it persist longer when both agents are optimists but reality proves both wrong. Bargaining proposals that are rejected initially might eventually be accepted after several periods of confrontation. We provide an explicit computation of the equilibrium, evaluating the probability of war, and its expected losses as a function of i) the costs of confrontation, ii) the asymmetry of the split imposed under surrender, and iii) the strengths of contenders at attack and defense. Changes in these parameters display non-monotonic effects.

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Bibliographic Info

Article provided by Spanish Economic Association in its journal SERIEs.

Volume (Year): 3 (2012)
Issue (Month): 1 (March)
Pages: 157-179

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Handle: RePEc:spr:series:v:3:y:2012:i:1:p:157-179

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Related research

Keywords: Bargaining; Incomplete information; Commitment; Indivisibilities; War; C78; D74;

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References

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  1. Carmen Beviá & Luis C. Corchón, 2008. "Peace Agreements Without Commitment," Working Papers 340, Barcelona Graduate School of Economics.
  2. Sanchez-Pages, Santiago, 2009. "Bargaining and Conflict with Incomplete Information," SIRE Discussion Papers 2009-55, Scottish Institute for Research in Economics (SIRE).
  3. Powell, Robert, 1996. "Bargaining in the Shadow of Power," Games and Economic Behavior, Elsevier, vol. 15(2), pages 255-289, August.
  4. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  5. Bester, Helmut & Wärneryd, Karl, 2006. "Conflict and the Social Contract," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 94, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Darren Filson & Suzanne Werner, . "A Bargaining Model of War and Peace: Anticipating the Onset, Duration, and Outcome of War," Claremont Colleges Working Papers 2001-02, Claremont Colleges.
  7. Jackson, Matthew O. & Morelli, Massimo, . "Political bias and war," Working Papers 1247, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Santiago Sánchez-Pagés, 2009. "Conflict as a Part of the Bargaining Process," Economic Journal, Royal Economic Society, vol. 119(539), pages 1189-1207, 07.
  9. Powell, Robert, 2006. "War as a Commitment Problem," International Organization, Cambridge University Press, vol. 60(01), pages 169-203, January.
  10. Garfinkel, Michelle R. & Skaperdas, Stergios (ed.), 2012. "The Oxford Handbook of the Economics of Peace and Conflict," OUP Catalogue, Oxford University Press, number 9780195392777, Octomber.
  11. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
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  1. Are wars rational?
    by Economic Logician in Economic Logic on 2011-01-11 16:11:00

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