Perfect Equilibrium in a Model of Competitive Arms Accumulation
This paper shows that the subgame-perfect Nash strategic equilibrium, which is relevant when countries can monitor their rival's weapon stock, leads to lower levels of arms and higher welfare than the standard open-loop Nash strategic equilibrium for an arms race. This result is derived for a model of competitive arms accumulation, in which two countries face a classic "guns versus butter" dilemma in the form of utilities that depend on consumption, leisure, and the characteristic defense. Moreover, it is argued that the perfect equilibrium strategies lead to a more satisfactory strategic underpinning of the well-know Richardson equations. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 31 (1990)
Issue (Month): 1 (February)
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References listed on IDEAS
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- Buiter, W, 1982.
"Saddlepoint Problems in Continuous Time Rational Expectations Models : A General Method and Some Macroeconomic Examples,"
The Warwick Economics Research Paper Series (TWERPS)
200, University of Warwick, Department of Economics.
- Buiter, Willem H, 1984. "Saddlepoint Problems in Continuous Time Rational Expectations Models: A General Method and Some Macroeconomic Examples," Econometrica, Econometric Society, vol. 52(3), pages 665-80, May.
- Willem H. Buiter, 1984. "Saddlepoint Problems in Contifuous Time Rational Expectations Models: A General Method and Some Macroeconomic Ehamples," NBER Technical Working Papers 0020, National Bureau of Economic Research, Inc.
- Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
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