Alliances Among Asymmetric Countries
We examine alliances between asymmetric countries. We find that the results depend on the nature of the equilibrium. If the equilibrium is an interior one then, with an increase in asymmetry, the level of the alliance-wide defense good decreases and the divergence between the first best and the equilibrium level of the defense good increases. In case the equilibrium involves a corner solution, these results are reversed though. It may be argued, however, that the interior equilibrium case is the more relevant one.
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