Models of Bargaining and Coercion Ken SchultzJeff Lewis Stanford UniversityUCLA

Bargaining Without Institutions 1.No rules or agenda govern the bargaining process. 2.Actors have an “outside option” to resort to costly coercive strategies (e.g., military action, rebellion, economic sanctions) 3.Small number of actors 4.Agreements must be self-enforcing.

Examples 1.Bargaining between states over territory, policies, etc., with an outside option of war 2.Bargaining between a government and a rebel group with an outside option of civil war or repression 3.Bargaining between rich and poor over tax rates with an outside option of revolution or coup

Theoretical and Empirical Challenges 1.The need to model interactions whose structure is not given by pre-existing rules 2.Absence of exogenous agenda and highly interdependent interactions exacerbate problems of endogeneity and selection 3.Reliance on observational (instead of experimental) data 4.Rare events/low variation in dependent variable

Empirical Strategies Tests of monotonic comparative-static predictions (e.g., Schultz 1999) Use of formal theory to characterize biases (e.g., Fearon 1994; Smith 1994; Schultz 2001) Econometric solutions to inferential challenges (e.g., Miguel et al. 2004) Fully structural strategic models (e.g., Signorino 1999; Lewis and Schultz 2001)

Plan for the Week TM Informational theories of conflict Commitment problems and conflict Reputation and repeated interaction

Plan for the Week EI Characterizing relationships and thinking about sources of bias Econometric fixes: instrumental variables and selection models Random utility models Fully structural models Experimental methods

A B A Challenge Not Challenge Resist Not Resist Fight Not Fight SQ SQ A, SQ B ACQ ACQ A, ACQ B BD BD A, BD B SF SF A, SF B A Crisis Bargaining Model Information Structure: B does not know SF A and BD A A does not know SF B All other payoffs common knowledge

A B A Challenge Not Challenge Resist Not Resist Fight Not Fight From Theoretical to Empirical Model Information Structure:  SF A,  BD A,  SF B ~N(0,1) A observes  SF A,  BD A B observes  SF B X common knowledge

Outcome Utilities (  X) Equilibrium Outcome Probabilities ( , X) Game Theory Maximum Likelihood Estimation Observed Outcomes and Covariates (X) Estimated Utilities ( ) Perfect Bayesian Equilibrium