Unite and (Plea) Bargain : On the Credibility of Threats in Sequential Negotiations

Principals use threats to make agents accept their demands. But what if agents outnumber threats? When negotiating with agents sequentially, a principal may have to forgo some agents to make threats against others credible. This paper examines a fundamental choice that such a principal faces: to divide agents and threats or to unite them. Using plea bargaining between limited-resource prosecution (principal) and offenders (agents), we show that by avoiding division the prosecution may boost---and never weaken---the credibility of its threats. We discuss the implications of this result for federalization of crime, employment negotiations, and formation of military alliances