Cheap Talk Causes Peace: Policy Bargaining and International Conflict

(Paper here.)

Here are two observations about international diplomacy:

First, crises are often the result of uncertainty about policy preferences. Currently, this is most apparent with the United States, Russia, and Ukraine. It remains unclear exactly how much influence Putin wants over Ukrainian politics. He might have expansionary aims or he may just want moderate control, aware that too much sway over Ukraine will cost Russia too much in subsidies in the long term. In the former case, the United States has reason to worry. In the latter case, the United States can relax.

Second, diplomatic conferences often discuss preferred policies. That is, the parties sit in a room and talk about what they want and what they don’t want. For scholars of crisis bargaining, this is weird. War, after all, is supposed to be the result of uncertainty about power or resolve or credible commitment. These types of discussions are seemingly cheap talk and are therefore supposed to have no effect on bargaining behavior.

In a new working paper, Peter Bils and I help explain these stylized facts. The first observation leads us to set aside the traditional sources of uncertainty–power and resolve–and instead focus on uncertainty over policy preferences on a real line, similar to the spatial model in American politics. The second observation suggests that we should study how cheap talk affects bargaining outcomes in such a world.

Our results are striking and run in contrast to the standard bargaining model of war. Rather than standardize policy preferences on a [0, 1] interval, we allow the winner of a war to endogenously decide what policy to implement afterward. This forces the parties to not only think about how likely they are to win a war and how much it will cost but also consider the quality of their post-conflict outcomes.

Without communication, we find that war may be inevitable–if your opponent’s preferred policy could range from moderate to very extreme, it is impossible to construct an offer to simultaneously appease all types. But if the range possibilities is smaller, peace can be inefficient. This is because the proposer may want to offer an amount that all types are willing to accept. Yet, in doing so, both the proposer and some types of the opponent would be both better off implementing a more moderate policy instead.

We then allow for cheap talk pre-play communication. Normally, cheap talk fails to cause meaningful change because weaker types have incentives to misrepresent; that is, they want to mimic stronger types to receive more generous demands. In some situations, this remains true in our setup. However, cheap talk can occasionally work when the uncertainty is about policy preferences. This is because moderate types sometimes do not want to bluff extremism since doing so would result in an intolerably extremist offer. As a result, where war was previously inevitable and peace was inefficient, peace always works and is efficient as well.

Empirically, this suggests that diplomacy is useful, which helps explain why states spend so much time and effort on it. And despite all of the incentives to lie, cheat, and bluff, those exchanges can sometimes be taken at face value.

Here’s the abstract from the paper:

Studies of bargaining and war generally focus on two sources of incomplete information: uncertainty about the probability of victory and uncertainty about the costs of fighting. We introduce a third: ideological preferences of a spatial policy. Under these conditions, standard results from the bargaining model of war break down: peace can be inefficient and it may be impossible to avoid war. We then extend the model to allow for cheap talk pre-play communications. Whereas incentives to misrepresent normally render cheap talk irrelevant, here communication can cause peace and ensure that agreements are efficient. Moreover, peace can become more likely when the proposer becomes more uncertain about the opposing state. Our results indicate one major purpose of diplomacy during a crisis is simply to communicate preferences and that such communications can be credible.

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