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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 carry out the threat if the victim refuses payment, and cannot commit not to carry 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 threatner, 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 victims 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 Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1139.

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Date of creation: Sep 1995
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Handle: RePEc:nwu:cmsems:1139

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  1. Klein, D.B., 1991. "A Game-Theoretic rendering of Promises and Threats," Papers 90-91-21, California Irvine - School of Social Sciences.
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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, vol. 21(4), pages 475-498, May.
  2. 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, vol. 18(2), pages 147-157, June.
  3. Konstantin Sonin, 2008. "A Theory of Brinkmanship, Conflicts, and Commitments," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 163-183, May.
  4. Vafai, Kouroche, 2002. "Preventing abuse of authority in hierarchies," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1143-1166, October.
  5. Michele Moretto & Paola Valbonesi, 2004. "Opting-out in profit-sharing regulation," Industrial Organization 0403002, EconWPA.

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