War or Peace
-
Hongbin Cai
This paper studies a simple two-stage model of conflict in which two players allocate resources between arms and domestic production in the first stage and subsequently engage in peace negotiations trying to avoid war. War is costly and war damages depend on arms buildup. Peace also comes with costs (e.g., disarmament, monitoring and enforcement). We show that when the cost of peace is in the medium range and resources are more effective in causing damages to one's enemy when invested in arms than in being productive in domestic production, the game has two kinds of equilibria: those involving peace and those involving war. The two players will build more arms in any peace equilibrium than in the (unique) war equilibrium. When the cost of peace is unknown to the players while making investment choices, arms levels in equilibrium are positively correlated with the probability of peace.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Contributions Article
- Suggested Subsidies are Sub-optimal Unless Combined with an Output Tax
- War or Peace
- Selective Information Provision and Special Interest Influence: The Case of Trade Policy
- Price Discrimination via Proprietary Aftermarkets
- The Spite Motive and Equilibrium Behavior in Auctions
- Optimal Liability for Libel
- Aggregation of Non Stationary Demand Systems
- The Savings Impact of College Financial Aid
- A Theory of Utilization Review
- Cigarette Demand, Structural Change, and Advertising Bans: International Evidence, 1970-1995
- Piracy and the Legitimate Demand for Recorded Music
- Oligopoly Deregulation and the Taxation of Commodities
- Forming Voting Blocs and Coalitions as a Prisoner's Dilemma: A Possible Theoretical Explanation for Political Instability
- Ethnicity and Networks in African Trade
- Endogenous Preferential Trade Agreements: An Empirical Analysis
Articles in the same Issue
- Contributions Article
- Suggested Subsidies are Sub-optimal Unless Combined with an Output Tax
- War or Peace
- Selective Information Provision and Special Interest Influence: The Case of Trade Policy
- Price Discrimination via Proprietary Aftermarkets
- The Spite Motive and Equilibrium Behavior in Auctions
- Optimal Liability for Libel
- Aggregation of Non Stationary Demand Systems
- The Savings Impact of College Financial Aid
- A Theory of Utilization Review
- Cigarette Demand, Structural Change, and Advertising Bans: International Evidence, 1970-1995
- Piracy and the Legitimate Demand for Recorded Music
- Oligopoly Deregulation and the Taxation of Commodities
- Forming Voting Blocs and Coalitions as a Prisoner's Dilemma: A Possible Theoretical Explanation for Political Instability
- Ethnicity and Networks in African Trade
- Endogenous Preferential Trade Agreements: An Empirical Analysis
