Peter Buisseret and Dan Bernhardt decreases,while the transfer that is needed to satisfy When a is large,election outcomes are insensitive hostile DGI's participation increases.20 to offers,so FG's return from using higher transfers to Consequences of Changes in Domestic Politics.We steer the election toward the friendly party is low.In now ask how changes in the preferences of the two do- this case,FG's response to an improvement in the atti- mestic parties affect FG's preferred initial interior of- tude of either party reflects that,conditional on holding office,that party is less likely to successfully renegotiate fer:that is,the interior offer that solves FG's objective Equation (15).FG's responses turn on the answers to the terms.This encourages FG to reduce its offer.When two questions:How does the change affect FG's rela- a is small enough,election outcomes become sensitive to offers,and the FG can more effectively steer the do tive value from steering the subsequent election toward the friendly party?And how does the change affect mestic electorate in favor of the friendly party by way FG's ability to influence the electoral outcome?Recall of a more generous offer.We now show how,depend- that,under Assumption 4,we assume that umed is uni- ing on FG's value from promoting the election of the formly distributed on [ve-a,ve +al. friendly party,this may lead to either more or less gen- Suppose that one of the domestic political parties erous date-one agreements. grows more inclined toward the project;that is,either Proposition 4.(Friendly Party's Valuation Increases.) v or rises.If that party later wins office,FG calculates Suppose the friendly party's project valuation rises. that the party's threat to walk away from the agree- Then there exist at most two thresholds a,and a*such ment is now less credible,since it values the agreement that if a<a FG's preferred offer increases and if by more.This encourages FG to respond with lower a>a,FG's preferred offer decreases.For a [a. transfers. there exists v(a)such that FG's most preferred offer is However,the party preference shift also alters the decreasing in元if and only if元≤*(a) electoral competitiveness of the two parties.Recall that a voter who is indifferent between the parties has Figure 1 illustrates these findings.If a is small (panel project valuation (a)),election outcomes are very sensitive to negotia- tion outcomes,so FG responds to increases in with in- creased offers,to promote the reelection of the friendly ()=+ ·+(UF-S2) DG1.But,if a is large(panel (c)),election outcomes are & relatively insensitive to higher offers,so FG responds with lower offers,since improvements in the friendly Absent any change in the negotiation settlement,a party's bargaining attitude make it a more pliant nego- higher lowers the electoral competitiveness of the tiating partner when it is retained. friendly party by shifting i to the right,raising the Finally,when a is intermediate (panel (b)),the elec- prospect that the median domestic voter will favor the tion is only moderately sensitive to international ne- hostile party.Conversely,a higher v raises the elec- gotiations.When and v are very close,the two par- toral competitiveness of the hostile party.Absent any ties are almost indistinguishable from FG's perspective change in FG's offer,these shifts place the friendly As a result,increases in only modestly increase FG's party at an increased disadvantage.This encourages value of promoting the reelection of the friendly party FG to respond with larger transfers. In conjunction with the reduced electoral returns from 。101g Finally,FG's value from promoting the friendly raising its offer(since a>),FG prefers to respond party's reelection depends on the wedge be- to a higher with smaller transfers. tween the two parties'bargaining attitudes.When the As the friendly party grows even more favorably friendly party grows even more favorably disposed to disposed to the project,that is,rises,FG's tradeoffs the project,the wedge grows,raising FG's stake from change.The increasing wedge -v in valuations be- steering the domestic election in the friendly party's tween the domestic political parties raises FG's stake in favor,encouraging FG to raise its transfer.By contrast, promoting the electoral success of the friendly party.In when the hostile party moderates,the wedge shrinks. conjunction with the non-trivial electoral returns from This reduces FG's stakes,encouraging FG to lower its raising its offer(since a<).FG responds to a higher transfer These calculations relate to the value placed by FG with larger transfers. Distinct considerations drive FG's response when on using higher offers to buttress its future negotiating the hostile party's valuation v rises: position.But whether higher offers can have a mean- ingful impact on the election depends on the sensitivity Proposition 5.(Hostile Party's Valuation Increases.) of voters'choices to offers.With uniformly distributed Suppose the hostile party is initially electorally compet- uncertainty,the density of ed evaluated at the thresh- itive,in the sense that old(s)iselectoral outcomes are more sensitive to offers when a is lower v-U UF-S1 (16) 20 The reason is that higher transfers also facilitate the reelection of Then,if the hostile party's project valuation v increases, friendly DG in the setting with endogenous turnover,but harm the FG's most preferred offer decreases.Otherwise,there reelection of hostile DG1.For any given offer bi>s1,this increases the relative willingness of friendly DG to accept,and lowers the exist at most two thresholds a,and a*such that if a relative willingness of hostile DG to accept.We are grateful to an a,FG's preferred offer increases and if a>a,FG's anonymous referee,who encouraged us to make this comparison. preferred offer decreases.For a e a.,a,there exists 1028Peter Buisseret and Dan Bernhardt decreases, while the transfer that is needed to satisfy hostile DG1’s participation increases. 20 Consequences of Changes in Domestic Politics. We now ask how changes in the preferences of the two do￾mestic parties affect FG’s preferred initial interior of￾fer; that is, the interior offer that solves FG’s objective Equation (15). FG’s responses turn on the answers to two questions: How does the change affect FG’s rela￾tive value from steering the subsequent election toward the friendly party? And how does the change affect FG’s ability to influence the electoral outcome? Recall that, under Assumption 4, we assume that vmed is uni￾formly distributed on [ve − α, ve + α]. Suppose that one of the domestic political parties grows more inclined toward the project; that is, either v or v rises. If that party later wins office, FG calculates that the party’s threat to walk away from the agree￾ment is now less credible, since it values the agreement by more. This encourages FG to respond with lower transfers. However, the party preference shift also alters the electoral competitiveness of the two parties. Recall that a voter who is indifferent between the parties has project valuation vˆ(s2 ) = v + v 2 + (vF − s2 ). Absent any change in the negotiation settlement, a higher v lowers the electoral competitiveness of the friendly party by shifting ˆv to the right, raising the prospect that the median domestic voter will favor the hostile party. Conversely, a higher v raises the elec￾toral competitiveness of the hostile party. Absent any change in FG’s offer, these shifts place the friendly party at an increased disadvantage. This encourages FG to respond with larger transfers. Finally, FG’s value from promoting the friendly party’s reelection depends on the wedge v − v be￾tween the two parties’ bargaining attitudes. When the friendly party grows even more favorably disposed to the project, the wedge grows, raising FG’s stake from steering the domestic election in the friendly party’s favor, encouraging FG to raise its transfer. By contrast, when the hostile party moderates, the wedge shrinks. This reduces FG’s stakes, encouraging FG to lower its transfer. These calculations relate to the value placed by FG on using higher offers to buttress its future negotiating position. But whether higher offers can have a mean￾ingful impact on the election depends on the sensitivity of voters’ choices to offers. With uniformly distributed uncertainty, the density of vmed evaluated at the thresh￾old ˆv(s2 ) is 1 2α : electoral outcomes are more sensitive to offers when α is lower. 20 The reason is that higher transfers also facilitate the reelection of friendly DG1 in the setting with endogenous turnover, but harm the reelection of hostile DG1. For any given offer b1 > s1, this increases the relative willingness of friendly DG1 to accept, and lowers the relative willingness of hostile DG1 to accept. We are grateful to an anonymous referee, who encouraged us to make this comparison. When α is large, election outcomes are insensitive to offers, so FG’s return from using higher transfers to steer the election toward the friendly party is low. In this case, FG’s response to an improvement in the atti￾tude of either party reflects that, conditional on holding office, that party is less likely to successfully renegotiate the terms.This encourages FG to reduce its offer.When α is small enough, election outcomes become sensitive to offers, and the FG can more effectively steer the do￾mestic electorate in favor of the friendly party by way of a more generous offer. We now show how, depend￾ing on FG’s value from promoting the election of the friendly party, this may lead to either more or less gen￾erous date-one agreements. Proposition 4. (Friendly Party’s Valuation Increases.) Suppose the friendly party’s project valuation v rises. Then there exist at most two thresholds α∗ and α∗ such that if α < α∗, FG’s preferred offer increases and if α > α∗, FG’s preferred offer decreases. For α ∈ [α∗, α∗], there exists v∗(α) such that FG’s most preferred offer is decreasing in v if and only if v ≤ v∗(α). Figure 1 illustrates these findings. If α is small (panel (a)), election outcomes are very sensitive to negotia￾tion outcomes, so FG responds to increases in v with in￾creased offers, to promote the reelection of the friendly DG1.But,if α is large (panel (c)), election outcomes are relatively insensitive to higher offers, so FG responds with lower offers, since improvements in the friendly party’s bargaining attitude make it a more pliant nego￾tiating partner when it is retained. Finally, when α is intermediate (panel (b)), the elec￾tion is only moderately sensitive to international ne￾gotiations. When v and v are very close, the two par￾ties are almost indistinguishable from FG’s perspective. As a result, increases in v only modestly increase FG’s value of promoting the reelection of the friendly party. In conjunction with the reduced electoral returns from raising its offer (since α > α∗), FG prefers to respond to a higher v with smaller transfers. As the friendly party grows even more favorably disposed to the project, that is, v rises, FG’s tradeoffs change. The increasing wedge v − v in valuations be￾tween the domestic political parties raises FG’s stake in promoting the electoral success of the friendly party. In conjunction with the non-trivial electoral returns from raising its offer (since α < α∗), FG responds to a higher v with larger transfers. Distinct considerations drive FG’s response when the hostile party’s valuation v rises: Proposition 5. (Hostile Party’s Valuation Increases.) Suppose the hostile party is initially electorally compet￾itive, in the sense that ve − v < vF − s1, (16) Then, if the hostile party’s project valuation v increases, FG’s most preferred offer decreases. Otherwise, there exist at most two thresholds α∗ and α∗ such that if α < α∗, FG’s preferred offer increases and if α>α∗, FG’s preferred offer decreases. For α ∈ [α∗, α∗], there exists 1028 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:04, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000400