Brexit: Brinkmanship and Compromise

Helios Herrera (1, 2) , Antonin Macé (3, 4) , Matias Nùnez (5, 6, 7)

1 University of Warwick [Coventry]
2 CEPII - Centre d'études prospectives et d'informations internationales
3 PSE - Paris School of Economics
4 PJSE - Paris Jourdan Sciences Economiques
5 CREST - Centre de Recherche en Economie et Statistique [Bruz]
6 IP Paris - Institut Polytechnique de Paris
7 GENES - Groupe des Écoles Nationales d'Économie et Statistique

We study how door die threats ending negotiations affect gridlock and welfare in the ratification of deals/treaties between opposing parties. Failure to agree in any period, as usual, implies a status-quo disagreement payoff and a continuation of the negotiation: a renegotiated amended agreement to be ratified next period. However, under brinkmanship, agreement failure in any period may precipitate instead a "hard" outcome, worse than the status-quo and than any feasible agreement. Such brinkmanship threats improve the scope for agreement, but also entail costs as we show. With symmetric parties only more extreme brinkmanship is beneficial: when an agreement is unlikely to begin with mild brinkmanship only reduces welfare by increasing the equilibrium chance of a hard outcome. If a party is advantaged it typically benefits even from mild threats, as the expected agreement shifts in its favor, while only extreme brinkmanship threats can benefit the disadvantaged party.

Mots clés: Hard Brexit; Gridlock; Government Shutdown; Collective Search

Domaines: Economies et finances

Helios Herrera, Antonin Macé, Matias Nùnez. Brexit: Brinkmanship and Compromise. 2021. ⟨halshs-03225030v1⟩