Alliances in Defense against an Opportunistic Opponent: Theory and Experiments

Abstract

This paper considers a situation in which an attacker can select among two possible targets for a single concentrated attack after observing the level of defense at each. Despite the attacker’s chance of success being determined by a proportional contest success function, if each target is defended separately the attacker should attack the weakest target creating an all-pay auction arms race between defenders that largely dissipates the value of the defended resources. However, if the defenders form a protective alliance then their expected payoffs increase despite the fact that a successful attack is theoretically more likely given the overall reduction in defense. Controlled laboratory experiments designed to test the model’s predictions are also reported. Behaviorally, alliances yield more profit to defenders as predicted, but also reduce the likelihood of a successful attack counter to the theoretical prediction.

Keywords: Contests, All-Pay Auctions, Alliances, Conflict Resolution, Terrorism, Arms Race, Experiments

JEL Classification: C72, C91, D72, D74