Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/221495
Authors: 
Shavell, Steven
Spier, Kathryn
Year of Publication: 
1995
Series/Report no.: 
Discussion Paper No. 1139
Abstract: 
This paper explores the power of threats in the absence of binding commitment. The threatener cannot commit to carry out the threat if the victim refuses payment, and cannot commit not to carry out the threat if payment is made. If exercising the threat is costly to the threatener, then the threat cannot succeed in extracting money from the victim. If exercising the threat would benefit the threatner, however, then the threat's success depends upon whether the threat may be repeated. In the equilibrium of a finite-period game, the threat is carried out and the victim makes no payments. In an infinite-horizon game, however, it is an equilibrium for the victims to make a stream of payments over time. The expectation of future payments keeps the threatener from exercising the threat.
Document Type: 
Working Paper

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