Bargaining and economic coercion: The use and effectiveness of sanctions

We address international economic sanctions from a bargaining perspective and explain the variation in states' decisions to employ economic coercion, in the objectives they pursue through it, and in the level of political concessions they are able to extract. The connection between military and economic coercion is examined first. Using a formalized bargaining model, we show that credible war options are of critical importance in determining whether economic coercion will be used and what distributional impact it might have. Evaluating the model's empirical implications reveals that state choices to initiate economic coercion and what coercion level to set indeed depend on both military and economic factors. We next show that the sanctions literature has not devoted sufficient attention to the strategic considerations behind state decisions to engage in economic coercion. We develop a non-cooperative game-theoretic model that endogenizes decisions to engage in economic coercion and what level of concessions to demand from the target. The model suggests that economically powerful challengers are more likely to engage in economic coercion, but, paradoxically, are not more likely to succeed because they also tend to demand greater concessions. Since the occurrence, type, and outcome of economic coercion are all endogenously determined, we estimate them simultaneously when testing the model's empirical implications. The empirical findings confirm that increasing senders' economic advantage indirectly worsens their success prospects. Our central conclusion is that ignoring either the military context of economic coercion or the strategic choices that precede it can result in misleading inferences about its effectiveness.