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Optimism and commitment: An elementary theory of bargaining and war

  • Ponsati, Clara
  • Sanchez-Pages, Santiago

We propose an elementary theory of wars fought by fully rational contenders. Two parties play a Markov game that combines stages of bargaining with stages where one side has the ability to impose surrender on the other. Under uncertainty and incomplete information, in the unique equilibrium of the game, long confrontations occur: war arises when reality disappoints initial (rational) optimism, and it persist longer when both agents are optimists but reality proves both wrong. Bargaining proposals that are rejected initially might eventually be accepted after several periods of confrontation. We provide an explicit computation of the equilibrium, evaluating the probability of war, and its expected losses as a function of i) the costs of confrontation, ii) the asymmetry of the split imposed under surrender, and iii) the strengths of contenders at attack and defense. Changes in these parameters display non-monotonic effects.

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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2010-101.

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Date of creation: 2010
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Handle: RePEc:edn:sirdps:232
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  1. Bester, Helmut & Wärneryd, Karl, 2006. "Conflict and the Social Contract," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 94, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Sanchez-Pages, Santiago, 2009. "Bargaining and Conflict with Incomplete Information," SIRE Discussion Papers 2009-55, Scottish Institute for Research in Economics (SIRE).
  3. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
  4. Carmen Beviá & Luis C. Corchón, 2008. "Peace Agreements Without Commitment," Working Papers 340, Barcelona Graduate School of Economics.
  5. Powell, Robert, 1996. "Bargaining in the Shadow of Power," Games and Economic Behavior, Elsevier, vol. 15(2), pages 255-289, August.
  6. Garfinkel, Michelle R. & Skaperdas, Stergios (ed.), 2012. "The Oxford Handbook of the Economics of Peace and Conflict," OUP Catalogue, Oxford University Press, number 9780195392777, July.
  7. Alastair Smith & Allan C. Stam, 2004. "Bargaining and the Nature of War," Journal of Conflict Resolution, Peace Science Society (International), vol. 48(6), pages 783-813, December.
  8. Powell, Robert, 2006. "War as a Commitment Problem," International Organization, Cambridge University Press, vol. 60(01), pages 169-203, January.
  9. 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.
  10. Jackson, Matthew O. & Morelli, Massimo, . "Political bias and war," Working Papers 1247, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Santiago Sánchez-Pagés, 2009. "Conflict as a Part of the Bargaining Process," Economic Journal, Royal Economic Society, vol. 119(539), pages 1189-1207, 07.
  12. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
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