Why Does the Folk Theorem Do Not Seem to Work When It Is Mostly Needed?

Johann Caro-Burnett, Sebastian Galiani and Gustavo Torrens

No 31343, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In International Relations the canonical model of inter-estate interactions is a one-shot security competition game. The model has the structure of a prisoners dilemma, which results in an equilibrium with two sources of inefficiency: excessive arming and possibly the destruction associated with open conflict. Standard arguments in game theory suggest that more cooperative outcomes should emerge given that states often engage in repeated interactions. Historical record, on the contrary, shows cycles of peace, arms races, and serious instances of open conflict. Long-lasting disarmed peace is rarely observed. The paper develops a unified model of conflict that reveals possible theoretical mechanisms to produce such historical outcomes.

JEL-codes: F5 (search for similar items in EconPapers)
Date: 2023-06
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