DEPOCEN Working Paper Series
N.M. Hung, 2009. "War and Peace: an Economic Liberalist Assessment"
In a simple formal model of two-country, two-good with an elementary Conflict Technology, we use a rudimentary game theoretics to study the matter of war and peace, where under peace, cooperative exchange takes place, and where, in case of war, the winner takes all through appropriation of the whole endowment left after payment of armament expenditures. We provide conditions under which war is inevitable, then go on to characterize situations where war, still probable, is not necessarily the final outcome. In this case, cooperative exchange is profitable to both countries, and they should take this welfare enhancement into account in the determination of thei armament expenditures. This problem will be cast in terms of a two-stage game, the final stage is modelled as a Nash Bargaining solution with endogenous threat-point, while the precedent stage, aimed at the determination of armament expenditure, arises as a Bayesian Nash Equilibrium in the context of incomplete information. Using backward induction to yield the perfect equilibrium of the game, this paper concurs the liberalist view according to which economic consideration would enhance not war, but peace.
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