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Economic Rewards versus Economic Sanctions in International Relations

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  • Brekhov, Boris

Abstract

I use game-theoretical models to compare a sender's expected payoff under two methods of wielding influence under incomplete information: offering rewards or threatening punishments. Attempts to influence another's behaviour can have the perverse effect of actually encouraging the behaviour that one is trying to discourage by creating, albeit different, incentives to bluff. Under a reward regime, targets can bluff in order to extort larger inducements. Under a sanction regime, targets can bluff in order to deter coercion attempts. I find that while sanctions are a weakly dominant tool of influence under complete information, rewards can be preferable under incomplete information. The sender often could do better by committing to a certain course of action for the entire duration of interaction. Moreover, using rewards and sanctions in combination can mitigate their adverse effects on targets' bluffing incentives when deploying only one instrument of influence separately.

Suggested Citation

  • Brekhov, Boris, 2019. "Economic Rewards versus Economic Sanctions in International Relations," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203599, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203599
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Economic Statecraft; Rewards; Sanctions; International Relations; International Organisations; Incomplete Information; Uncertainty; Game Theory;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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