William McKinley, Fat Tails, Optimal Reneging, and the Spanish-American War
34 Pages Posted: 7 Mar 2017 Last revised: 10 May 2017
Date Written: March 6, 2017
President William McKinley’s decision to go to war with Spain is not well understood. Since McKinley kept very few written records, little is known about his actual thought process. As a result, historians have struggled with the apparent contradiction between McKinley’s initial commitment to peace and subsequent decision to go to war and tend to focus on identifying outside forces that can explain the reversal. In this paper, I develop a model of optimal reneging. Contrary to conventional narratives among historians that McKinley’s decision to go to war was a contradiction of his earlier position, my model suggests that McKinley’s decision can be understood as an optimal timing problem. I start with the premise that a country would prefer to enter conflict only when its military capability is sufficient to make a victory likely. Thus, a country will commit to peace until its military capability reaches some threshold. Once military capability reaches this threshold, it is optimal to renege on a commitment to peace. I conduct simulations of the model to determine the likelihood that McKinley would renege during his first term. I find that if the ex ante estimate of the benefits of war were 2 - 2.6 times the ex ante estimate of cost, then the probability of reneging after one year is approximately 1% - 18%. If the perceived benefits were 2.7 times the ex ante estimate of cost (or greater), entry during McKinley’s first term is certain.
Keywords: War, Political Economy, William McKinley, Spanish-American War
JEL Classification: H56, N41
Suggested Citation: Suggested Citation