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Bargaining and Conflict with Up-Front Investments: How Power Asymmetries Matter

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  • Zachary Schaller
  • Stergios Skaperdas

Abstract

We examine settings - such as litigation, labor relations, or arming and war - in which players first make non-contractible up-front investments to improve their bargaining position and gain advantage for possible future conflict. Bargaining is efficient ex post, but we show that a player may prefer Conflict ex ante if there are sufficient asymmetries in strength. There are two sources of this finding. First, up-front investments are more dissimilar between players under Conflict, and they are lower than under Bargaining when one player is much stronger than the other. Second, the probability of the stronger player winning in Conflict is higher than the share received under Nash bargaining. We thus provide a rationale for conflict to occur under complete information that does not depend on long-term commitment problems. Greater balance in institutional support for different sides is more likely to maintain peace and settlements.

Suggested Citation

  • Zachary Schaller & Stergios Skaperdas, 2019. "Bargaining and Conflict with Up-Front Investments: How Power Asymmetries Matter," CESifo Working Paper Series 8030, CESifo.
  • Handle: RePEc:ces:ceswps:_8030
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    Cited by:

    1. Clark, Derek J. & Kundu, Tapas, 2021. "Competitive balance: Information disclosure and discrimination in an asymmetric contest," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 178-198.

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    More about this item

    Keywords

    power asymmetries; war; litigation; contests;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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