Bargaining and Conflict with Up-Front Investments: How Power Asymmetries Matter

Zachary Schaller and Stergios Skaperdas

No 8030, CESifo Working Paper Series from CESifo

Abstract: We examine settings - such as litigation, labor relations, or arming and war - in which players first make non-contractible up-front investments to improve their bargaining position and gain advantage for possible future conflict. Bargaining is efficient ex post, but we show that a player may prefer Conflict ex ante if there are sufficient asymmetries in strength. There are two sources of this finding. First, up-front investments are more dissimilar between players under Conflict, and they are lower than under Bargaining when one player is much stronger than the other. Second, the probability of the stronger player winning in Conflict is higher than the share received under Nash bargaining. We thus provide a rationale for conflict to occur under complete information that does not depend on long-term commitment problems. Greater balance in institutional support for different sides is more likely to maintain peace and settlements.

Keywords: power asymmetries; war; litigation; contests (search for similar items in EconPapers)
JEL-codes: C70 D74 J53 K41 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-gth, nep-law and nep-mic
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Related works:
Journal Article: Bargaining and conflict with up-front investments: How power asymmetries matter (2020)
Working Paper: Bargaining and Conflict with Up-front Investments: How Power Asymmetries Matter (2019)
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