Applied Bargaining Models and Mechanism Design

Abstract from an interesting working paper, "Uncertainty and Incentives in Crisis Bargaining: Game-Free Analysis of International Conflict, "by Mark Fey and Kristopher Ramsay (available here):

The formal literature on international conflict has identified the combination of uncertainty and the incentive to misrepresent private information as a central cause of war. But there is a fundamental problem with using game-theoretic models to formulate general claims such as these---whether and to what extent a result that holds in a particular choice of game form continues to hold when different modeling choices are made is typically unknown. To address this concern, we present techniques from Bayesian mechanism design that allow us to establish general "game-free" results that must hold in any equilibrium of any game form in a broad class of crisis bargaining games. We focus on three different varieties of uncertainty that countries can face and establish general results about the relationship between these sources of uncertainty and the possibility of peaceful resolution of conflict. We find that in the most general setting of uncertainty about the value of war, there is no equilibrium of any possible crisis bargaining game form that allows the unilateral use of force that completely avoids the chance of costly war.

This is part of a series of papers that Fey and Ramsay have been writing on so-called "game free" analysis of crisis bargaining. The approach is appealing because it lends itself to consideration of classes of conflict resolution mechanisms that ought to be robust to changes in the bargaining procedure. As Fey and Ramsay describe, this type of analysis is especially relevant in crisis bargaining contexts. It is often the fluidity of the bargaining context that makes crisis bargaining situations distinct from institutionalized bargaining in, say, legislatures. (Although, one may argue that distributions of power may lend some structure to the bargaining situation. For example, the dynamic "ultimatum game" structure of Acemoglu and Robinson's transitions game, Boix's transitions game, and Fearon's civil war settlement game derive from an assumption about which actors have the capacity to make proposals.)

Interestingly, I came to this article after having assisted Macartan in preparing a draft of a review article on coalitional analysis. That article gives considerable attention to cooperative game theory and the Nash program. I see some similarity between what Fey and Ramsay are doing and the Nash program---basically, defining classes of games that implement axiomatic solutions.