Studies in Persuasion and Enforcement in Political Economy

Theisen, Alexander Scott

doi:https://doi.org/10.21985/n2-26t1-d190

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Studies in Persuasion and Enforcement in Political Economy

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This dissertation presents research on the game theory of political power, both between and within nations. It first revisits a classical distinction between three different types of power or influence: information, rewards and threats. By presenting a binary-action Principal-Agent problem which incorporates the essential ingredients of all three types of power, it allows for a comparison of the relative costs, benefits, and strengths of each type of power according to already existing criteria from the previous literature. It is demonstrated that one can think of the cost of each form of power as being the cost of maintaining credibility in one’s commitments. The dissertation then goes on to recast the optimal choice of how to use these forms of power as a combined mechanism and information design problem, and presents results on the substitutability and complementarity of the different forms of power discussed. It is demonstrated that a necessary condition for two or more of these forms of power to be used in combination is that at least one of them is incapable of inducing compliance when used alone. Finally, the dissertation presents a theoretical model of the choice between formal (third- party) and informal enforcement of cooperative arrangements. It is demonstrated that, in a simple model of cultural heterogeneity between interacting agents, the returns to utilizing formal power arrangements are increasing in the diversity of a society, even if such arrange- ments require extra costs. Intuitively, as the probability of a misunderstanding between two types of agents increases, the benefits from deferring to the judgment of a third party also increases.

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