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Rational Escalation

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  • Gabrielle Demange

Abstract

In many conflicts, protagonists commit resources that will not be returned. These situations, which often lead to apparently wasteful escalation, are well captured by the following "all-pay" auction. Two bidders bid repeatedly for a prize until one drops out. As usual the prize goes to the highest bidder but both bidders, the winner and the looser, pay their bids. Not only a process of escalation may be rational but it may be the only reasonable rational issue. We indeed prove that, if there is some uncertainty about the strength of the players, the only stable equilibrium may entail escalation. This result corroborates the idea that escalation is primarily a struggle to determine which player is the strongest one.

Suggested Citation

  • Gabrielle Demange, 1992. "Rational Escalation," Annals of Economics and Statistics, GENES, issue 25-26, pages 227-249.
    • Handle: RePEc:adr:anecst:y:1992:i:25-26:p:227-249
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    Cited by:

    1. Dan Kovenock & Brian Roberson, 2009. "Is the 50-State Strategy Optimal?," Journal of Theoretical Politics, , vol. 21(2), pages 213-236, April.
    2. Norman, Thomas W.L., 2018. "Inefficient stage Nash is not stable," Journal of Economic Theory, Elsevier, vol. 178(C), pages 275-293.
    3. Johannes Hörner & Nicolas Sahuguet, 2011. "A war of attrition with endogenous effort levels," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 1-27, May.

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