Two hypothetical countries, Euphoria and Militia, are
holding negotiations to settle a dispute. They meet once a month, starting in
January, and take turns making offers. Suppose the total at stake is 100
points. The government of Euphoria is facing reelection in November. Unless the
government produces an agreement at the October meeting, it will lose the
election, which it regards as being just as bad as getting zero points from an
agreement. The government of Militia does not really care about reaching an
agreement; it is just as happy to prolong the negotiations or even to fight,
because it would be settling for anything significantly less than 100.
(a) What will be the outcome of the negotiations? What
difference will the identity of the first mover make?
(b) In light of your answer to part (a), discuss why
actual negotiations often continue right down to the deadline.