How Opportunity Costs Decrease the Probability of War in an Incomplete Information Game
AbstractThis paper shows that the opportunity costs resulting from economic interdependence decrease the equilibrium probability of war in an incomplete information game. This result is strongly consistent with existing empirical analyses of the inverse trade-conflict relationship, but is the opposite of the conclusion reached by Gartzke et al. (2001), who reject the opportunity cost argument in a game-theoretic framework. As a result of this paper's findings, one cannot dismiss the opportunity cost argument as the explanation why trading nations fight less. Instead this study reaffirms the central position of opportunity costs as the basis for the inverse trade-conflict relationship, thus implying that one need not rely on signaling.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3883.
Length: 19 pages
Date of creation: Dec 2008
Date of revision:
Publication status: published in: International Organization, 2010, 64 (1), 133-144
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Other versions of this item:
- Polachek, Solomon & Xiang, Jun, 2010. "How Opportunity Costs Decrease the Probability of War in an Incomplete Information Game," International Organization, Cambridge University Press, vol. 64(01), pages 133-144, January.
- F10 - International Economics - - Trade - - - General
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
This paper has been announced in the following NEP Reports:
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- Martin, Philippe & Mayer, Thierry & Thoenig, Mathias, 2005.
"Make Trade not War?,"
CEPR Discussion Papers
5218, C.E.P.R. Discussion Papers.
- Solomon W. Polachek, 2011. "Current Research and Future Directions in Peace Economics: Trade Gone Awry," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 16(2), pages 4.
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