In this paper we explore the role of conflict as an informational device by means of a simple bargaining model with one-sided incomplete information: Limited conflicts reveal information about the outcome of the all-out conflict (that ends the game) because the outcomes of both types of confrontations are driven by the relative strength of the parties. We limit the analysis to the case where the uninformed party can learn the information transmitted in the battlefield but not the one conveyed by offers. The game becomes then an optimal stopping problem where the informed party has to decide at each period whether to stop, by reaching an agreement or by invoking total conflict, or to keep fighting. We show that conflict is a double-edge sword: It may paradoxically open the door to agreement when the uniformed party is too optimistic. But confrontation also occurs when agreement is possible but the informed agent has incentives to improve her bargaining position by fighting.
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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number
99.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Lawrence M. Ausubel & Peter Cramton & Raymond J. Deneckere, 2002.
"Bargaining with Incomplete Information,"
Papers of Peter Cramton
02barg, University of Maryland, Department of Economics - Peter Cramton, revised 12 Mar 2001.
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