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The Invisible Fist: How Potential Power Coerces Concessions

Download the paper: http://wjspaniel.wordpress.com/2012/09/13/new-working-paper-the-invisible-fist/Abstract: Recently, declining states have tried to preempt power shifts by offering concessions to rising states before any power transition occurs. However, we have no models that explain this behavior. Are such agreements credible in the long run? We develop an infinite horizon bargaining game in which power shifts are endogenous and costly. When the rising state can credibly threaten to shift power but the cost is restrictive, the declining state offers immediate concessions. In response, the rising state does not invest in weapons; although shifting power yields further concessions, the additional gain does not cover the cost of development. Thus, equilibrium settlements reflect both realized and unrealized power. Interestingly, the rising state maximizes its payoff when the investment cost is palpable, not when it is near zero. We then apply these findings to the United States' ongoing negotiations with Iran over the latter's alleged nuclear weapons program.
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