Bargaining and the Failure of Asymmetric Deterrence: Trading off the Risk of War for the Promise of a Better Deal

Abstract

We propose that fully informed rivals' ability to bargain on the terms of an alternative status quo can lead to the failure of asymmetric deterrence. The model we develop to support this claim allows repeated rounds of bargaining, crisis, and war until one of the rivals agrees to the other side's last offer. The defender holds and enjoys possession of the prize coveted by the challenger. We argue that the defender's incentive to drag his feet and the challenger's resulting need to resort to threats if she is to obtain anything at all, yield inefficient equilibria that involve costly wars. Credibility requires that the rivals make good on their deterrent threats of war with some probability, and this probability depends on the two sides respective bargaining positions. We therefore identify a tradeoff between bargaining and deterrence that leave the rivals indifferent between a whole continuum of possible inefficient equilibria. However, we distinguish between the ex ante expected utility calculations on which the rivals make forward looking, optimal, decisions and the evaluation of the ex post consequences of these choices. The ex post evaluation captures the expected consequence of a strategy choice by evaluating the endgame outcome net of all costs incurred. In those equilibrium strategies that also optimize expected ex post prospects, the defender may well choose to make low compromise offers in case of challenge despite the risk of war, while the challenger remains aggressive but contains his demands.