Journal Article

Arms Races and Negotiations

Sandeep Baliga and Tomas Sjöström

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 71, issue 2, pages 351-369
Published in print April 2004 | ISSN: 0034-6527
Published online April 2004 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/0034-6527.00287
Arms Races and Negotiations

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  • Game Theory and Bargaining Theory
  • National Government Expenditures and Related Policies
  • Analysis of Collective Decision-making

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Two players simultaneously decide whether or not to acquire new weapons in an arms race game. Each player's type determines his propensity to arm. Types are private information, and are independently drawn from a continuous distribution. With probability close to one, the best outcome for each player is for neither to acquire new weapons (although each prefers to acquire new weapons if he thinks the opponent will). There is a small probability that a player is a dominant strategy type who always prefers to acquire new weapons. We find conditions under which the unique Bayesian-Nash equilibrium involves an arms race with probability one. However, if the probability that a player is a dominant strategy type is sufficiently small, then there is an equilibrium of the cheap-talk extension of the game where the probability of an arms race is close to zero.

Keywords: C72; D74; H56

Journal Article.  11574 words.  Illustrated.

Subjects: Game Theory and Bargaining Theory ; National Government Expenditures and Related Policies ; Analysis of Collective Decision-making

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