How brinkmanship saved Chadbourne: Credibility and the International Sugar Agreement of 1931

Theories of cartel stability assume detection is uncertain, but also unambiguous. Recent empirical studies find that cartel agreements are contractually incomplete. If so, whether an action constitutes violation may be ambiguous. While theory emphasizes the ineffectiveness of agreements that are not fully specified ex ante, recent research shows that stable cartels may often renegotiate terms to eliminate loopholes caused by incompleteness. Naturally, renegotiations can lead to breakdowns, but sometimes threats of breakdown are resolved. This paper examines the strategy adopted by Cuban negotiators to resolve a near breakdown in the International Sugar Agreement of 1931. Cuba made a threat of retaliation credible by using a strategy of brinkmanship. The paper contributes to recent empirical work, such as Levenstein [Explorations in Economic History 33 (1996) 107; Journal of Industrial Economics 45 (2) (1997) 117] and Genesove and Mullin [American Economic Review 91 (3) (2001) 379], which uses the economics of organization to interpret cartel behavior.