Embracing the Enemy - Abstract - JEL Codes D23, D74, D86

Oct 22, 2026

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A principal can partially influence how power is allocated between two competing parties. The principal is nearer to one party, the “friend,” than to the other, the “enemy.” The optimal contract starts by excluding the enemy, but when the enemy gains power the principal embraces him in return for policy moderation. Moderation also disciplines the friend, moving him closer to the principal’s preferred policy.

LanguageEnglish

CategoryResearch & Report

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Pages72

Reading Time3 h 1 min

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Abstract

Introduction

arXiv :2406 .09734v7 [ econ .TH] 24 Jun 2026 Embracing the Enemy ∗Álvaro Delgado-Vega† Johannes Schneider‡ June 2026 Abstract A principal can partially influence the allocation of power between two competing parties. The principal is closer to one party, the “friend”, than to the other, the“enemy”. The principal’s optimal contract initially seeks to exclude the enemy. However, once the enemy gains power, the principal embraces him in exchange for policy moderation. Moderation also disciplines the friend, inducing him to move closer to the principal’s preferred policy. Principals close to the friend fully embrace the enemy; more centrist principals divide their support. Commitment benefits the principal only if she is close to the friend and parties value power little. JEL Codes: D23, D74, D86 Keywords: Relational Contracts, Organizational Economics, Political Economy, Horizontal Moral Hazard, Coalition Formation Politics is the art of the possible, the attainable—the art of the next best. Otto von Bismarck 1 Introduction All organizations must grapple with disagreement, especially when a discordant actor is ina position to shape collective decisions. One common strategy for limiting such influence is exclusion. Economists formalize this logic as the Ally Principle: whenever possible, the principal delegates authority to aligned actors, thereby preventing the discordant actor from exercising power. Its political counterpart, the cordon sanitaire, follows the same ∗We are grateful to Antoine Loeper for inspiring discussions early on. We thank Antonio Cabrales, Paweł Doligalski, Dana Foarta, Gabriele Gratton, Elliot Lipnowski, Chara Papioti, Spencer Pantoja, Harry Pei, Elia Sartori, Christoph Schottmüller, Jonathan B. Slapin, Takuo Sugaya, Heidi Thysen, Jan Zapal, and audiences at various places. Johannes Schneider acknowledges financial support from PID-2024-149885OB-I00 . We thank the institutions we spent time at during this research for their hospitality and inspiration: Schneider was at uc3m, UBern, and NHH (Bergen); Delgado-Vega was atthe Chair of Political Economy and eDemocracy (ETH Zurich) and a Doctoral Scholar (scholarship PRE2019-089897) at U. Carlos III de Madrid. †University of Chicago; [adelgadovega@uchicago.edu](adelgadovega@uchicago.edu) ‡Johannes Kepler University; [johannes.schneider@jku.at](johannes.schneider@jku.at) logic: mainstream parties collaborate to isolate radical parties and deny them meaningful influence. Yet permanent exclusion proves challenging in practice. Consider, for instance, a parliament witnessing the emergence of an anti-establishment party. This newcomer competes directly with established parties, disrupting traditional governance patterns andreshaping the distribution of political power. Centrist parties—strategically positioned between ideological extremes—may become power brokers deciding, for example, who obtains cabinet posts. Their choices, however, are constrained: parliamentary arithmetic or shifts in public sentiment limit their options. A similar problem arises for centrist interest groups allocating electoral support—think of campaign contributors, major newspapers, or even groups of (perhaps organized) voters.1 By endorsing aligned parties, they may bring them to power more often, but they cannot avoid the risk that a different party ultimately wins office. In this paper, we study optimal power brokerage in such scenarios. Our power broker, though influential, is not all-powerful. What strategy should she pursue? Should she impose a cordon sanitaire around a discordant agent? Or should she, on the contrary, back him in exchange for his moderation? We consider an infinite-horizon setting in which two political parties (both “he”) repeatedly compete for the right to set policy. Both are power-hungry and agenda-driven, vying over who leads and which policy is made. A third player, the principal (“she”), is the power broker. She has an agenda, too,

FAQs

How does the principal’s optimal contract evolve over time?

It initially targets excluding the enemy, but after the enemy gains power the principal embraces him to obtain policy moderation.

What is the effect of embracing the enemy on the friend?

Moderation obtained from the enemy also disciplines the friend, inducing him to move closer to the principal’s preferred policy.

When does the principal benefit from commitment?

Commitment benefits the principal only if she is close to the friend and if parties value power very little.

Oct 22, 2026

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