Optimism and commitment: An elementary theory of bargaining and war

Clara Ponsati and Santiago Sánchez-Pagés

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: 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 defence. Changes in these parameters display non-monotonic effects.

Keywords: bargaining; incomplete information; commitment; war (search for similar items in EconPapers)
JEL-codes: C78 D74 (search for similar items in EconPapers)
Pages: 35
Date: 2010-11
New Economics Papers: this item is included in nep-gth
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http://www.econ.ed.ac.uk/papers/id198_esedps.pdf

Related works:
Journal Article: Optimism and commitment: an elementary theory of bargaining and war (2012)
Working Paper: Optimism and commitment: An elementary theory of bargaining and war (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:198

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