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The use of conflict as a bargaining tool against unsophisticated opponents

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Abstract

In this paper we explore the role of conflict as an informational device by means of a simple bargaining model with one-sided incomplete information: Limited conflicts reveal information about the outcome of the all-out conflict (that ends the game) because the outcomes of both types of confrontations are driven by the relative strength of the parties. We limit the analysis to the case where the uninformed party can learn the information transmitted in the battlefield but not the one conveyed by offers. The game becomes then an optimal stopping problem where the informed party has to decide at each period whether to stop, by reaching an agreement or by invoking total conflict, or to keep fighting. We show that conflict is a double-edge sword: It may paradoxically open the door to agreement when the uniformed party is too optimistic. But confrontation also occurs when agreement is possible but the informed agent has incentives to improve her bargaining position by fighting.

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  • Santiago Sanchez-Pages, 2003. "The use of conflict as a bargaining tool against unsophisticated opponents," Edinburgh School of Economics Discussion Paper Series 99, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:99
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    References listed on IDEAS

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    1. Powell, Robert, 1996. "Bargaining in the Shadow of Power," Games and Economic Behavior, Elsevier, vol. 15(2), pages 255-289, August.
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    Cited by:

    1. Santiago Sanchez-Pages, 2009. "Bargaining and Conflict with Incomplete Information," Edinburgh School of Economics Discussion Paper Series 191, Edinburgh School of Economics, University of Edinburgh.
    2. Stergios Skaperdas, 2006. "Bargaining Versus Fighting," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(6), pages 657-676.
    3. Heifetz, Aviad & Segev, Ella, 2005. "Escalation and delay in protracted international conflicts," Mathematical Social Sciences, Elsevier, vol. 49(1), pages 17-37, January.

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    More about this item

    Keywords

    relative strength; absolute conflict; battles; unsophisticated opponent; optimal stopping;
    All these keywords.

    JEL classification:

    • 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
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • N4 - Economic History - - Government, War, Law, International Relations, and Regulation

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