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Strategic Ambiguity and Arms Proliferation

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  • Sandeep Baliga
  • Tomas Sjöström

Abstract

A big power is facing a small power that may have developed weapons of mass destruction. The small power can create strategic ambiguity by refusing arms inspections. We study the impact of strategic ambiguity on arms proliferation and welfare. Strategic ambiguity is a substitute for actually acquiring weapons: ambiguity reduces the incentive for the small power to invest in weapons, which reduces the threat of arms proliferation. But strategic ambiguity hides information, and this can lead to costly mistakes. Cheap-talk messages can be used to trigger inspections when such mistakes are particularly costly. Tough messages that trigger inspections always imply a greater risk of arms proliferation. (c) 2008 by The University of Chicago. All rights reserved..

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000001247.

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Date of creation: 17 Mar 2006
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Handle: RePEc:cla:levrem:122247000000001247

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  1. Sandeep Baliga & Tomas Sjostrom, 2001. "Arms Races and Negotiations," Economics Working Papers 0007, Institute for Advanced Study, School of Social Science.
  2. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
  3. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  4. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  5. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  6. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Philip Bond, 2004. "Bank and Nonbank Financial Intermediation," Journal of Finance, American Finance Association, vol. 59(6), pages 2489-2529, December.
  8. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  9. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
  10. Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 525-40, October.
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Cited by:
  1. Mikhail Golosov & Vasiliki Skreta & Aleh Tsyvinski & Andrea Wilson, 2011. "Dynamic Strategic Information Transmission," Cowles Foundation Discussion Papers 1802, Cowles Foundation for Research in Economics, Yale University, revised Jun 2011.
  2. Antonis Adam & Petros G. Sekeris, 2010. "Self-Containment: Achieving Peace in Anarchic Settings," Working Papers 1014, University of Namur, Department of Economics.
  3. Ederer, Florian & Holden, Richard & Meyer, Margaret A, 2013. "Gaming and Strategic Ambiguity in Incentive Provision," CEPR Discussion Papers 9319, C.E.P.R. Discussion Papers.
  4. Pierre Yared, 2008. "The Use of Concessions in Forestalling War," 2008 Meeting Papers 32, Society for Economic Dynamics.
  5. Lang, Matthias & Wambach, Achim, 2013. "The fog of fraud – Mitigating fraud by strategic ambiguity," Games and Economic Behavior, Elsevier, vol. 81(C), pages 255-275.
  6. Sandeep Baliga & Tomas Sjostrom, 2009. "The Strategy of Manipulating Conflict," Departmental Working Papers 200906, Rutgers University, Department of Economics.
  7. J. Atsu Amegashie, 2009. "Third-Party Intervention in Conflicts and the Indirect Samaritan's Dilemma," CESifo Working Paper Series 2695, CESifo Group Munich.
  8. Di Maggio, Marco, 2009. "Accountability and Cheap Talk," MPRA Paper 18652, University Library of Munich, Germany.

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