Threats without Binding Commitment

Steven Shavell () and Kathryn Spier

No 5461, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: K42 C70 (search for similar items in EconPapers)
Date: 1996-02
Note: LE
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Related works:
Working Paper: Threats Without Binding Commitment (1995)
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