War as an Investment
45 Pages Posted: 8 Jan 2013
Date Written: September 1, 2012
States often bargain over objects that affect their future bargaining power. A large territory, for example, is not only valuable in itself, but also as a source of raw material, population and defense. As a result, states not only try to maximize their benefits when they negotiate over the partition of a territory; they also strive to increase their power --- their ability to secure a favorable outcome in the future. We study these situations in the context of two- and three-player bargaining games in which present outcomes affect future power, and show three main results: (i) in a two-player negotiation, war never occurs in equilibrium, unless states value the future too differently; (ii) with three players, war can occur in equilibrium; (iii) however, these wars of investments --- wars aimed at accumulating resources that improve their ability to secure favorable outcomes in future negotiations --- only occur if there are increasing returns in the mapping from resources to the probability of winning.
Keywords: war, conflict, bargaining, rationality, negotiation, third party
JEL Classification: D74, H5, N40, C72, C78
Suggested Citation: Suggested Citation