Abstract

http://ssrn.com/abstract=1315922
 
 

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How Opportunity Costs Decrease the Probability of War in an Incomplete Information Game


Solomon W. Polachek


State University of New York at Binghamton; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Jun Xiang


University of Rochester


IZA Discussion Paper No. 3883

Abstract:     
This paper shows that the opportunity costs resulting from economic interdependence decrease the equilibrium probability of war in an incomplete information game. This result is strongly consistent with existing empirical analyses of the inverse trade-conflict relationship, but is the opposite of the conclusion reached by Gartzke et al. (2001), who reject the opportunity cost argument in a game-theoretic framework. As a result of this paper's findings, one cannot dismiss the opportunity cost argument as the explanation why trading nations fight less. Instead this study reaffirms the central position of opportunity costs as the basis for the inverse trade-conflict relationship, thus implying that one need not rely on signaling.

Number of Pages in PDF File: 19

Keywords: war, conflict, trade, trade-conflict relationship, interdependence, incomplete information game, signaling

JEL Classification: F10, C7, P16

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Date posted: December 15, 2008  

Suggested Citation

Polachek, Solomon W. and Xiang, Jun, How Opportunity Costs Decrease the Probability of War in an Incomplete Information Game. IZA Discussion Paper No. 3883. Available at SSRN: http://ssrn.com/abstract=1315922 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Contact Information

Solomon W. Polachek (Contact Author)
State University of New York at Binghamton ( email )
Binghamton, NY 13902-6000
United States
607-777-2144 (Phone)
607-777-4900 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Jun Xiang
University of Rochester ( email )
300 Crittenden Blvd.
Rochester, NY 14627
United States
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