Template-Type: ReDIF-Paper 1.0
Title: Bargaining Under the Threat of a Nuclear Option
Author-Name: Franziska Heinicke
Author-Email: Franziheinicke@gmail.com
Author-Name: Wladislaw Mill
Author-Email: mill@uni-mannheim.de
Author-Name: Henrik Orzen
Author-Email: henrik.orzen@uni-mannheim.de

Classification-JEL: C91, D91, D01, C78, J52.
Keywords: Nuclear option; Power asymmetry; Bargaining; Experiment

Abstract: This paper addresses bargaining with a nuclear option. Players with access
to such an option have the power to cause enormous damage to their negotiation partners. Figurative nuclear options are available in many important
real-world settings and, being the ultimate threat, are often seen as effective
in putting maximal pressure on the other party and as possibly efficiency-
improving. On the other hand, since going nuclear is typically also very
costly to the nuclear-option holder herself, the credibility of a nuclear threat
may be questionable. We report the results from unstructured one-shot bargaining experiments and examine to what extent a nuclear option increases
bargaining power, makes agreements more likely, and affects efficiency. We
find that nuclear-option holders do not generally benefit while the other party
is worse off compared to a baseline setting, particularly when the other party
is intrinsically—i.e., save for the nuclear threat itself—in a strong position.
Furthermore, the nuclear option increases the number of negotiations that
end in agreements that are not efficiency-improving. Thus, the presence of a
nuclear option in our bargaining setting is overall detrimental.

Note: 
Length: 64
Creation-Date: 2024-06
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp559
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_559