Using a simple bargaining game, we investigate how strategic interactions are shaped by preferences, technology, and endowments. We study whether changes in relative military capabilities make conflicts more likely and find a nonmonotonic relationship between the cost of conflict and the probability of conflict. The game has strategic complements if the cost of conflict is small and there is a large first-mover advantage and has strategic substitutes otherwise. This characterization generates predictions regarding the use of strategic investments— for example, in defense systems. An extension of the model shows how expanding one’s territory today may increase the risk of conflict tomorrow.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics