Threats without Binding Commitment
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.
|Date of creation:||Feb 1996|
|Date of revision:|
|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).|
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- Klein, Daniel B. & O'Flaherty, Brendan, 1993.
"A game-theoretic rendering of promises and threats,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 21(3), pages 295-314, August.
- 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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