Analyzing strategic behavior in a dynamic model of bargaining and war

We analyze a dynamic model of bargaining and war with two states located on a linear territory. One state demands a portion of the other state's territory each period such that if the latter state makes a concession, the former state takes control of the demanded portion. If otherwise, the two states engage in warfare to decide which state controls the disputed portion of territory. A la Fearon, we consider a model in which the states bargain over objects that influence future bargaining power. That is, it is valuable to have more territory, not only because it brings higher utility, but also because it increases future bargaining power, as it can be used to generate military resources in wars to come. We implicitly characterize the unique Markov perfect equilibrium of the model, and utilizing a set of parameter values, we illustrate that there are six different types of equilibrium outcomes. We then provide a variety of historical examples and argue that our model is able to capture their patterns and characteristics.