Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215032 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 8030
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
power asymmetries
war
litigation
contests
JEL: 
C70
D74
J53
K41
Document Type: 
Working Paper
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