Bargaining Under the Threat of a Nuclear Option

Franziska Heinicke (), Wladislaw Mill and Henrik Orzen

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper addresses bargaining with a nuclear option. Players with access to such an option have the power to cause enormous damage to their negotiation partners. Figurative nuclear options are available in many important real-world settings and, being the ultimate threat, are often seen as effective in putting maximal pressure on the other party and as possibly efficiency- improving. On the other hand, since going nuclear is typically also very costly to the nuclear-option holder herself, the credibility of a nuclear threat may be questionable. We report the results from unstructured one-shot bargaining experiments and examine to what extent a nuclear option increases bargaining power, makes agreements more likely, and affects efficiency. We find that nuclear-option holders do not generally benefit while the other party is worse off compared to a baseline setting, particularly when the other party is intrinsically—i.e., save for the nuclear threat itself—in a strong position. Furthermore, the nuclear option increases the number of negotiations that end in agreements that are not efficiency-improving. Thus, the presence of a nuclear option in our bargaining setting is overall detrimental.

Keywords: Nuclear option; Power asymmetry; Bargaining; Experiment (search for similar items in EconPapers)
JEL-codes: C78 C91 D01 D91 J52 (search for similar items in EconPapers)
Pages: 64
Date: 2024-06
New Economics Papers: this item is included in nep-exp, nep-gth and nep-lab
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