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Threats without Binding Commitment

  • Steven Shavell
  • Kathryn Spier

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.

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File URL: http://www.nber.org/papers/w5461.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5461.

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Date of creation: Feb 1996
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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).
Handle: RePEc:nbr:nberwo:5461
Note: LE
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  1. 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.
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