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Threats without Binding Commitment

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  • Steven Shavell
  • Kathryn Spier

Abstract

This paper explores the power of threats in the absence of binding commitment. The threatener cannot commit to carrying out the threat if the victim refuses payment, and cannot commit to not carrying out the threat if payment is made. 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. 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5461.

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Date of creation: Feb 1996
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Publication status: published as Steven Shavell & Kathryn E. Spier, 2002. "Threats Without Binding Commitment," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1).
Handle: RePEc:nbr:nberwo:5461

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  1. Klein, Daniel B. & O'Flaherty, Brendan, 1993. "A game-theoretic rendering of promises and threats," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 21(3), pages 295-314, August.
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Cited by:
  1. Gomez, Fernando & Ganuza, Juan-Jose, 2002. "Civil and criminal sanctions against blackmail: an economic analysis," International Review of Law and Economics, Elsevier, Elsevier, vol. 21(4), pages 475-498, May.
  2. Michele Moretto & Paola Valbonesi, 2004. "Opting-out in profit-sharing regulation," Industrial Organization, EconWPA 0403001, EconWPA.
  3. Vafai, Kouroche, 2002. "Preventing abuse of authority in hierarchies," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(8), pages 1143-1166, October.
  4. Schwarz, Michael & Sonin, Konstantin, 2005. "A Theory of Brinkmanship, Conflicts, and Commitments," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5075, C.E.P.R. Discussion Papers.
  5. Farmer, Amy & Pecorino, Paul, 1998. "A reputation for being a nuisance: frivolous lawsuits and fee shifting in a repeated play game," International Review of Law and Economics, Elsevier, Elsevier, vol. 18(2), pages 147-157, June.

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