Post-Defense Returns: Dynamic Strategic States and the Value of Low-Return Actions

Gerrit Meyerheim

No 12962, CESifo Working Paper Series from CESifo

Abstract: Observed action returns guide decisions: use less of the lower-return action. I show when that rule fails in adversarial environments. A zero-sum envelope validates comparisons. When actions move a persistent defense state, an interior stationary equilibrium equates the net current-return gap to the negative discounted value of the induced path. Observed and decision-relevant return gaps coincide when reallocation has no separate payoff effect. Otherwise, the observed gap must be adjusted. This creates a use-up/return-down inversion: strategic leverage can raise use while lowering the gross return gap. Stronger preparedness incentives and lower adjustment costs preserve this inversion with a forward-looking defender on an open set. A curvature-feedback condition characterizes their signs along an affine-equilibrium branch. A two-state patent model shows lower-return patents can remain privately valuable through diversion and blocking yet be socially overused. Net return gaps identify the continuation wedge, not its decomposition into state values, persistence, and action leverage.

Keywords: dynamic games; post-defense returns; strategic decoys; strategic state dependence (search for similar items in EconPapers)
JEL-codes: C73 D21 D43 O34 (search for similar items in EconPapers)
Date: 2026
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