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A Bargaining Model of Domestic Politics and the Cost of War
Unformatted Document Text:  Bargaining models have become commonplace in the international conflict literature in the past two decades, and have provided a number of significant insights regarding when and why states resort to arms. The bargaining model has been used to explain how wars begin, how wars end, and how long we can expect wars to last. In addition the model has been adapted to explain the durability of peace agreements, extended deterrence, territorial conflict, trade and conflict, and the democratic peace. The theoretical transport of this simple model is quite impressive. While the bargaining model has provided valuable insight into the analysis of war, two problems persist. First, conflict does occur, so equilibrium strategies that would lead to bargained outcomes rather than war sometimes elude states. Why states cannot locate negotiated outcomes preferable to the costly lottery of war is often attributed to states’ incentives to misrepresent private information. We suggest an alternative explanation rooted in the infrequency of bargaining in the shadow of war, and present a model that departs from standard Nash equilibrium solutions. We expand the bargaining model’s predictions using quantal response analysis. The bargaining model adapts economic results from bargains in the market to understand the negotiations between states. The parallels are explicit - in each case players make demands - offers - and counterdemands in an attempt to maximize their own gain. The application of this model to war has one important distinction, however, in that, unlike players in the market who engage in numerous and repeated interactions, leaders of states engage in relatively few negotiations where war is a real possibility should they not reach agreement. Thus, states do not have the same opportunities as their econoic counterparts to develop consistent understandings of the rationality of their opponents. This distinction is crucial. Rather than moving smoothly to an equilibrium, leaders must guess at the level of rationality of their opponents. This assessment can affect both the demands made and the probability of war. Quantal response analysis allows us to compute predicted offers, based on various perceived levels of rationality. Comparison of the QRE predictions to our experimental results provides us with a richer understanding of the dynamics involved 1

Authors: Clark, David., Holt, Charles., Nordstrom, Timothy., Reed, William. and Sieberg, Katri.
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Bargaining models have become commonplace in the international conflict literature in
the past two decades, and have provided a number of significant insights regarding when
and why states resort to arms. The bargaining model has been used to explain how wars
begin, how wars end, and how long we can expect wars to last. In addition the model has
been adapted to explain the durability of peace agreements, extended deterrence, territorial
conflict, trade and conflict, and the democratic peace. The theoretical transport of this
simple model is quite impressive.
While the bargaining model has provided valuable insight into the analysis of war, two
problems persist. First, conflict does occur, so equilibrium strategies that would lead to
bargained outcomes rather than war sometimes elude states. Why states cannot locate
negotiated outcomes preferable to the costly lottery of war is often attributed to states’
incentives to misrepresent private information. We suggest an alternative explanation rooted
in the infrequency of bargaining in the shadow of war, and present a model that departs from
standard Nash equilibrium solutions. We expand the bargaining model’s predictions using
quantal response analysis. The bargaining model adapts economic results from bargains in
the market to understand the negotiations between states. The parallels are explicit - in each
case players make demands - offers - and counterdemands in an attempt to maximize their
own gain. The application of this model to war has one important distinction, however,
in that, unlike players in the market who engage in numerous and repeated interactions,
leaders of states engage in relatively few negotiations where war is a real possibility should
they not reach agreement. Thus, states do not have the same opportunities as their econoic
counterparts to develop consistent understandings of the rationality of their opponents. This
distinction is crucial. Rather than moving smoothly to an equilibrium, leaders must guess
at the level of rationality of their opponents. This assessment can affect both the demands
made and the probability of war. Quantal response analysis allows us to compute predicted
offers, based on various perceived levels of rationality. Comparison of the QRE predictions
to our experimental results provides us with a richer understanding of the dynamics involved
1


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