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How Opportunity Costs Decrease the Probability of War in an Incomplete Information Game

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  • Polachek, Solomon
  • Xiang, Jun

Abstract

This article shows that the opportunity costs resulting from economic interdependence decrease the 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, Li, and Boehmer, who reject the opportunity cost argument in a game-theoretic framework. As a result of our findings, one cannot dismiss the opportunity cost argument as the explanation why trading nations fight less. Instead our 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.

Suggested Citation

  • 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(1), pages 133-144, January.
  • Handle: RePEc:cup:intorg:v:64:y:2010:i:01:p:133-144_99
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    References listed on IDEAS

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    1. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 865-900.
    2. John R. Oneal & Bruce Russett, 1999. "Assessing the Liberal Peace with Alternative Specifications: Trade Still Reduces Conflict," Journal of Peace Research, Peace Research Institute Oslo, vol. 36(4), pages 423-442, July.
    3. Katherine Barbieri, 1996. "Economic Interdependence: A Path to Peace or a Source of Interstate Conflict?," Journal of Peace Research, Peace Research Institute Oslo, vol. 33(1), pages 29-49, February.
    4. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 865-900.
    5. Solomon William Polachek, 1980. "Conflict and Trade," Journal of Conflict Resolution, Peace Science Society (International), vol. 24(1), pages 55-78, March.
    6. James D. Morrow, 1999. "How Could Trade Affect Conflict?," Journal of Peace Research, Peace Research Institute Oslo, vol. 36(4), pages 481-489, July.
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    Citations

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    Cited by:

    1. J Tyson Chatagnier & Haeyong Lim, 2021. "Does the WTO exacerbate international conflict?," Journal of Peace Research, Peace Research Institute Oslo, vol. 58(5), pages 1068-1082, September.
    2. Max Gallop, 2017. "More dangerous than dyads: how a third party enables rationalist explanations for war," Journal of Theoretical Politics, , vol. 29(3), pages 353-381, July.
    3. J. Tyson Chatagnier & Kerim Can Kavaklı, 2017. "From Economic Competition to Military Combat," Journal of Conflict Resolution, Peace Science Society (International), vol. 61(7), pages 1510-1536, August.
    4. Yuleng Zeng, 2020. "Bluff to peace: How economic dependence promotes peace despite increasing deception and uncertainty," Conflict Management and Peace Science, Peace Science Society (International), vol. 37(6), pages 633-654, November.
    5. Nizan Feldman & Ehud Eiran & Aviad Rubin, 2021. "Naval Power and Effects of Third-Party Trade on Conflict," Journal of Conflict Resolution, Peace Science Society (International), vol. 65(2-3), pages 342-371, February.
    6. Hauwah K. K. Abdulkareem & Sodiq Olaiwola Jimoh & Ebenezer Olubiyi, 2023. "Trade–peace conundrum in Africa: The moderating effects of poverty and inequality," African Development Review, African Development Bank, vol. 35(4), pages 323-335, December.
    7. Yuleng Zeng, 2021. "Biding time versus timely retreat: Asymmetric dependence, issue salience, and conflict duration," Journal of Peace Research, Peace Research Institute Oslo, vol. 58(4), pages 719-733, July.
    8. Xiang Jun & Primiano Christopher B. & Huang Wei-hao, 2015. "Aggressive or Peaceful Rise? An Empirical Assessment of China’s Militarized Conflict, 1979–2010," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 21(3), pages 301-325, August.
    9. Polachek Solomon W, 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 1-14, January.
    10. Ghulam Shabbir & Amjad Naveed & Muhammad Ali Khan & Shabib Haider Syed, 2022. "Does Peace Promote Bilateral Trade Flows? An Economic Analysis of Panel Data in Asian Perspective," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(1), pages 143-158, March.
    11. Nizan Feldman & Tal Sadeh, 2018. "War and Third-party Trade," Journal of Conflict Resolution, Peace Science Society (International), vol. 62(1), pages 119-142, January.
    12. Brandon J Kinne, 2014. "Does third-party trade reduce conflict? Credible signaling versus opportunity costs," Conflict Management and Peace Science, Peace Science Society (International), vol. 31(1), pages 28-48, February.
    13. Polachek Solomon W & Xiang Jun, 2010. "Opportunity Costs and the Probability of War in an Incomplete Information Game (With Comments by Lloyd Jeff Dumas)," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 16(1), pages 1-6, June.
    14. Kristian Skrede Gleditsch & Steve Pickering, 2014. "Wars are becoming less frequent: a response to Harrison and Wolf," Economic History Review, Economic History Society, vol. 67(1), pages 214-230, February.

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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