Political Brinkmanship and Compromise
Résumé
We study how do-or-die threats ending negotiations affect gridlock and welfare when two
opposing parties bargain. Failure to agree on a deal in any period implies a continuation of the
negotiation. However, under brinkmanship, agreement failure in any period may precipitate a crisis with a small chance. In equilibrium, such brinkmanship threats improve the probability of an agreement, but also increase the risk of crisis. Brinkmanship reduces welfare when one might think it is most needed: severe gridlock. In this case, despite this global welfare loss, a party has incentives to use brinkmanship strategically to obtain a favorable bargaining position
Domaines
Economies et financesOrigine | Fichiers produits par l'(les) auteur(s) |
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