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Perfect equilibrium in a model of competitive arms accumulation

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  • van der Ploeg, F.
  • de Zeeuw, A.J.

    (Tilburg University, School of Economics and Management)

Abstract

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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Suggested Citation

  • van der Ploeg, F. & de Zeeuw, A.J., 1988. "Perfect equilibrium in a model of competitive arms accumulation," Other publications TiSEM b04300ed-fa0f-4797-b2f6-9, Tilburg University, School of Economics and Management.
  • Handle: RePEc:tiu:tiutis:b04300ed-fa0f-4797-b2f6-951613a08cdb
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    References listed on IDEAS

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    1. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
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    3. 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 665-680, May.
    4. 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 473-491, June.
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