Arms Races and Negotiations
 Journal: The Review of Economic Studies, volume 71, issue 2, pages 351369

Related identifiers: doi: 10.1111/00346527.00287 
Subject: Multiplier Effect, Bayesian Nash Equilibrium, Cheaptalk Extension, Arms Race Game
Two players simultaneously decide whether or not to acquire new weapons in an arms race game. Each player's type determines his propensity to arm. Types are private information, and are independently drawn from a continuous distribution. With probability close to one, the best outcome for each player is for neither to acquire new weapons (although each prefers to acquire new weapons if he thinks the opponent will). There is a small probability that a player is a dominant strategy type who always prefers to acquire new weapons. We find conditions under which the unique BayesianNash equilibrium involves an arms race with probability one. However, if the probability that a player is a dominant strategy type is sufficiently small, then there is an equilibrium of the cheaptalk extension of the game where the probability of an arms race is close to zero. Copyright 2004, WileyBlackwell.

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