Bargaining and Conflict with Incomplete Information

This paper studies bargaining and conflict under incomplete information,
provides an overview and a critical account of the literature on
the topic and contributes with original research. We first revise models
of mechanism design and sequential bargaining that take confrontation
as final. Conflict and inefficiencies are to be expected in these models
whenever parties have optimistic prospects on the outcome of the all-out
conflict. After examining the causes and reasons for this optimism, we
move to the analysis of the recent literature that considers the existence
of limited confrontations that allow bargaining to resume. In the presence
of private information, these limited conflicts convey information and thus
become a bargaining instrument. The paper closes with a discussion on
the related empirical literature, the challenges that it faces and some potential
avenues for further research.