Domestic Institutions and International Bargaining: The Role of Agent Veto in Two-Level Games

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Abstract
Putnam's (1988) conjecture that negotiators can benefit from their domestic constraints implies that they may want to impose domestic constraints on themselves by granting veto power to an agent. I show that a negotiator's decision to employ an agent as veto player depends on the kinds of information available to the foreign country and the alignment of preferences between the negotiator and the agent. When the foreign country has incomplete information about the negotiator's preferences and the negotiator has preferences too divergent from those of the agent, the negotiator will not give veto power to the agent. However, this applies only to an agent with extreme preferences, and a surprisingly large number of agent types will receive veto power. The attractiveness of the agent veto to the negotiator is in part due to its informational effect. By granting veto power to an agent, the negotiator can transmit more information to the foreign country and capture informational gains that would be lost in the absence of the agent veto.

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