Some thoughts on the fiscal cliff negotiations and Schelling points (I intend to keep this limited to political strategy, not taking sides on substantial policy questions):

The way Congress Republicans have been approaching the negotiations has perplexed some observers. The basic point is, the Bush tax cuts are scheduled to expire at the end of the year. Republicans want to extend all of them, but they are powerless to do it, controlling only the House. Democrats want to extend only those for "the middle class" and let those for "the rich" expire (cutoff is at $250K income). At the same time, there are a bunch of other negotiations going on on spending cuts, tax code reform, debt ceiling, etc.

Since all the tax cuts are going to expire automatically at the end of the year anyway, it seems to make sense for the Republicans to "concede" the increase in taxes for the rich, using this concession to bargain on other items on the agenda, before December 31st. However, most discussions I've read see it as very unlikely that they will do so.

As strategy, this seems to make little sense; after the end of the year, reducing the (automatically hiked) tax rates for the middle class is something on which both Ds and Rs agree, so neither has leverage on this, and if anything it is the Ds who will now be able offer some slight reduction in the tax rates of the rich to extract concessions from Rs on other issues. There may be some complicated strategy on which the R conduct makes sense in a direct utility-maximizing way, but one alternative plausible explanation is in terms of Schelling points and deontological rules.

Many Republicans have signed a pledge to never raise taxes, and even those who haven't or don't consider it binding see "never raising taxes" as a key item of their policy agenda. This codifies what we call here an Ethical Injunction: "Thou shalt not raise taxes". This deontological rule, agreed upon by Republicans decades ago, does not come with a qualification "unless they will rise anyway ". Violating the rule is eliminating a Schelling point on which Republicans can coordinate and agree. The situation is like the classic example of a river being a natural boundary between two countries, so that if Country A asks for a few miles of territory on B's side of the river in exchange for intrinsically more valuable concessions on other fronts, B refuses because then the Schelling point is lost and A can ask for more and more territory in the future. Republicans may fear that if they vote "Aye" on tax hikes before December 31st, regardless of how meaningless this "concession" is in substance in the current situation, this will settle a precedent that they "can" raise taxes and then in subsequent negotiations they may find themselves pressed to do it again and again.