Domestic constraints in crisis bargaining

This paper analyzes an agency model of crisis bargaining where two states have private information about war payoffs. In the model, two leaders bargain on behalf of their own states. Importantly, owing to political bias and audience costs, a leader’s war payoff and peace payoff differ from those of her state at large. I establish general results about leaders’ bargaining strategies and the possibility of peaceful resolution. By examining incentive compatibility constraints, I show that in any equilibrium that has zero probability of costly war, a leader’s payoff net of audience costs cannot vary with their private information. After that, I identify the size of resource necessary to appease both states. If this necessary condition holds, which is affected by political bias, there exist properly specified audience costs that guarantee peaceful bargaining outcomes.