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Adversarial bargaining with exogenous shocks

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  • Cuellar, Pablo
  • Rentschler, Lucas

Abstract

This paper examines equilibrium strategies in adversarial bargaining, which are negotiations where one party demands concessions under threat of initiating a destructive conflict. We develop a multi-period model incorporating both endogenous conflict decisions and the risk of exogenous conflict, analyzing how outcomes depend on threat credibility and patience levels. Three types of equilibrium emerge: impatient aggressors extract the maximum concession through credible deterministic threats; highly patient scenarios feature probabilistic threats where exogenous risk creates bargaining power; and intermediate patience levels produce mixed-strategy threats. We distinguish between scenarios where conflict benefits the aggressor versus where conflict harms both parties, leading to brinkmanship. Our results reveal a striking non-monotonic relationship between patience and equilibrium demands when conflict benefits the aggressor.

Suggested Citation

  • Cuellar, Pablo & Rentschler, Lucas, 2026. "Adversarial bargaining with exogenous shocks," Journal of Economic Behavior & Organization, Elsevier, vol. 248(C).
    • Handle: RePEc:eee:jeborg:v:248:y:2026:i:c:s0167268126002404
    DOI: 10.1016/j.jebo.2026.107654
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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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