A Dynamic Theory of War and Peace

In every period, an aggressive country seeks concessions from a non-aggressive country with private information about their cost. The aggressive country can force concessions via war, and both countries suffer from limited commitment.We characterize the efficient sequential equilibria. We show that war is necessary to sustain peace and that temporary wars can emerge because of the coarseness of public information. In the long run, temporary wars can be sustained only if countries are patient, if the cost of war is large, and if the cost of concessions is low.

Above is a preprint version of the article. The final version may be found at < http://dx.doi.org/10.1016/j.jet.2010.04.005 >.