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The use of conflict as a bargaining tool against unsophisticated opponents

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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.

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Length: 22
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:edn:esedps:99

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Keywords: Relative strength; absolute conflict; battles; unsophisticated opponent; optimal stopping.;

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References

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  1. Sobel, Joel & Takahashi, Ichiro, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 411-26, July.
  2. Joan Esteban & József Sákovics, 2002. "Endogenous bargaining power," Economics Working Papers 644, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Anbarci, Nejat & Skaperdas, Stergios & Syropoulos, Constantinos, 2002. "Comparing Bargaining Solutions in the Shadow of Conflict: How Norms against Threats Can Have Real Effects," Journal of Economic Theory, Elsevier, vol. 106(1), pages 1-16, September.
  4. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  5. Garfinkel, M.R. & Skaperdas, S., 2000. "Conflict without Misperceptions or Incomplete Information: how the Future Matters," Papers 99-00-11, California Irvine - School of Social Sciences.
  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. Powell, Robert, 1996. "Bargaining in the Shadow of Power," Games and Economic Behavior, Elsevier, vol. 15(2), pages 255-289, August.
  8. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  9. Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002. "Bargaining with incomplete information," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945 Elsevier.
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Cited by:
  1. Stergios Skaperdas, 2006. "Bargaining Versus Fighting," Working Papers 060705, University of California-Irvine, Department of Economics.
  2. Santiago Sanchez-Pages, 2009. "Bargaining and Conflict with Incomplete Information," ESE Discussion Papers 191, Edinburgh School of Economics, University of Edinburgh.

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