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

This article shows that the opportunity costs resulting from economic interdependence decrease the 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 conclusio...

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Bibliographic Details
Published in:International organization 2010-01, Vol.64 (1), p.133-144
Main Authors: Polachek, Solomon, Xiang, Jun
Format: Article
Language:English
Subjects:
Conflict theory
Costs
Economic benefits
Economic models
Economic theory
Empirical research
Equilibrium
Expected utility
Foreign investment
Games
Information
Interdependence
International organizations
International trade
Opportunity cost
Opportunity costs
Probability
Studies
Trade
Trade gains
War
War conflict
War economics
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Summary:This article shows that the opportunity costs resulting from economic interdependence decrease the 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, Li, and Boehmer, who reject the opportunity cost argument in a game-theoretic framework. As a result of our findings, one cannot dismiss the opportunity cost argument as the explanation why trading nations fight less. Instead our 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.
ISSN:0020-8183
1531-5088
DOI:10.1017/S002081830999018X