TY - JOUR
T1 - Arms races and negotiations
AU - Baliga, Sandeep
AU - Sjöström, Tomas
N1 - Funding Information:
Acknowledgements. We thank three anonymous referees and the editor, Mark Armstrong, for many valuable comments. We also thank Eric Maskin, Josef Perktold, Ariel Rubinstein and Bill Zame, as well as the participants in many seminars, for their comments. Tomas Sjöström acknowledges financial support from National Science Foundation grant SES-0111527. Any errors are our responsibility.
PY - 2004/4
Y1 - 2004/4
N2 - 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 Bayesian-Nash 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 cheap-talk extension of the game where the probability of an arms race is close to zero.
AB - 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 Bayesian-Nash 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 cheap-talk extension of the game where the probability of an arms race is close to zero.
UR - http://www.scopus.com/inward/record.url?scp=11144355850&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=11144355850&partnerID=8YFLogxK
U2 - 10.1111/0034-6527.00287
DO - 10.1111/0034-6527.00287
M3 - Article
AN - SCOPUS:11144355850
SN - 0034-6527
VL - 71
SP - 351
EP - 369
JO - Review of Economic Studies
JF - Review of Economic Studies
IS - 2
ER -