Economic sanctions as deterrents and constraints

This article analyses economic sanctions starting from the perspective of a target that has to allocate its income between spending on resources to pursue a contentious policy and consumption goods. By studying the target’s consumption problem, it demonstrates how sanctions could backfire causing the target to shift its spending to resources to pursue the contentious policy, thereby increasing the severity of the policy. Whether this will come to pass depends on the elasticities of substitution, which are determined by the target’s utility function. Therefore, even sanctions that seem like they could do no harm, such as embargoes on luxury goods consumed by only the target’s dictator, could aggravate the level of the policy given the right utility function. Considering the target’s consumption problem also illustrates how sanctions could (depending on the form of the target’s utility function) reduce the resources it could allocate to pursuing the contentious policy, thereby moderating it. If the benefits of this constraint outweigh the costs of sanctions to the sender, it could be in the sender’s best interest to impose sanctions. In these cases articulating a demand and waiting for the target to consider it would simply provide the target with additional time to continue the contentious policy, so the sender would impose constraining sanctions without warning. Constraining sanctions, therefore, provide an explanation for sanctions imposed without a threat stage. Constraining sanctions can occur even with complete and perfect information and may persist indefinitely, explaining the existence of long-term costly sanctions as well as sanctions that occur in cases of full information.