The Uncertainty Trade-off: Reexamining Opportunity Costs and War

Abstract

Conventional wisdom about economic interdependence and international conflict predicts that increasing opportunity costs make war less likely, but some wars occur after costs grow. Why? We develop a model that shows that a nonmonotonic relationship exists between the costs and probability of war when there is uncertainty over resolve. Under these conditions, increasing the costs of an uninformed party's opponent has a second-order effect of exacerbating informational asymmetries about that opponent's willingness to maintain peace. We derive conditions under which war can occur more frequently and empirically showcase the model's implications through a case study of Sino-Indian relations from 1949 to 2007. This finding challenges how scholars traditionally believe economic interdependence mediates incentives to fight: instruments such as trade have competing effects on the probability of war.

High valuations, uncertainty, and war

“…Our model’s underlying mechanism most closely matches findings from Arena (2013), Reed (2003), and Spaniel and Malone (2019). Each of these articles examines how increasing a peace premium raises the probability of war.…”

“…Reed (2003) compares a direct-type space of military strength. Lastly, Spaniel and Malone (2019) find that increasing a state's cost of war when its resolve is unknown counterintuitively raises the likelihood of conflict. We advance this line of research by identifying an alternative consequence of peace premiums in bargaining models of war.…”

“…This is why existing work describes such V values as the actor’s resolve. 3 However, building on a growing set of models (Arena, 2013; Fearon, 1997; Slantchev, 2005; Spaniel and Malone, 2019; Wolford, 2014), we do not make this transformation. If we did, taking a comparative static on the value would conflate a change of that value and a change in the source of uncertainty.…”

Containing Conflict? The Effect of the Intermodal Transport Revolution

“…Rather than focus on commitment problems, I address the informational environment. In this domain, my model is closest to Spaniel and Malone's (2019). They assume perfect information about conflict costs and trade benefits but allow for asymmetric information regarding each player's valuation of the contested resource, uncovering a nonmonotonic relationship between trade benefits and bargaining breakdowns.…”

Power transfers, military uncertainty, and war

“… 2. One might believe that the costs of war depend on the military allocation, and thus transfers ought to have that effect. See Spaniel and Malone (2019) for a discussion of how changing costs shift the probability of war when resolve is the cause of cost uncertainty. …”