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Arms Races and Negotiations

Author

Listed:
  • Sandeep Baliga
  • Tomas Sjostrom

    (Department of Economics, Kellogg Graduate School of Management, Northwestern University
    Department of Economics, Rutgers the State University of New Jersey)

Abstract

A state which does not desire an arms race may nevertheless acquire new weapons if it believes another state will acquire them. If each state assigns some arbitrarily small probability to the event that the other state has a dominant strategy to acquire more weapons, then a multiplier effect appears, and the unique Bayesian Nash equilibrium involves an arms race with probability one. However, if the prior probability that a player is a dominant strategy type is sufficiently small, then there is an equilibrium of the cheap-talk extension of the arms race game where the probability of an arms race is close to zero.

Suggested Citation

  • Sandeep Baliga & Tomas Sjostrom, 2001. "Arms Races and Negotiations," Economics Working Papers 0007, Institute for Advanced Study, School of Social Science.
    • Handle: RePEc:ads:wpaper:0007
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