Sanctions Enforcement and the Costs of Economic Coercion

• In Event: Strategic Decisions on Economic Sanctions

Abstract

Although sanctions are assumed to impose costs on target states, recent studies demonstrate that the cost of sanctions is a function of their effectiveness in disrupting economic transactions between senders and targets. This suggest that the cost of sanctions is endogenous to the sender’s efforts to enforce them. Yet, by enforcing sanctions policies, senders may create increasing burdens on their own firms, which renders their ability to commit to sanctions non-credible. This study examines how the imposition and enforcement of economic sanctions endogenously creates costs for firms in both sender and target states. We demonstrate that sanctions create costs by increasing transaction costs and adding uncertainty regarding whether or not contracts can be fulfilled that extend beyond the narrow economic/financial impact of the measures actually imposed. While these actions increase the price of goods to the target state, our formal model demonstrates that senders have incentives to limit their enforcement to ensure that their firms do not lose market share to foreign competitors. These hypotheses are tested using data a large-n analysis of the impact that U.S. sanctions enforcement actions undertaken by the U.S. Department of Treasury has on U.S. firms trade with sanctioned states. We also explore the broader generalizability of our argument by examining the responses of Zimbabwe’s tourism sector to sanctions and those of European firms to the sanctions against Russia.

Authors

• Navin A. Bapat, University of North Carolina, Chapel Hill

• Bryan Robert Early, SUNY, University at Albany

• Julia Grauvogel, GIGA German Institute of Global and Area Studies