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We examine formally the link between domestic political institutions and policy choices in the context of eight empirical regularities that constitute the democratic peace. We demonstrate that democratic leaders, when faced with war, are more inclined to shift extra resources into the war effort than are autocrats. This follows because the survival of political leaders with larger winning coalitions hinges on successful policy. The extra effort made by democrats provides a military advantage over autocrats. This makes democrats unattractive targets, since their institutional constraints cause them to mobilize resources for the war effort. In addition to trying harder, democrats are more selective in their choice of targets. Because defeat is more likely to lead to domestic replacement for democrats than for autocrats, democrats only initiate wars they expect to win. These two factors lead to the interaction between polities that is often referred to as the democratic peace.

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We test three arguments about the effect of international politics on trade flows. The first argument states that trade flows are greater between states with similar interests than those with dissimilar interests, the second that trade flows are greater in democratic dyads than nondemocratic dyads, and the third that trade flows are greater between allies. We examine trade flows between the major powers from 1907 to 1990. This period provides variation on all three independent variables of interest and allows us to separate the three arguments empirically. We estimate a gravity model of trade with the above political variables added. Our results demonstrate that joint democracy and common interests increase trade in a dyad, but alliances generally do not, even when controlling for polarity of the system.

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Institutional arrangements influence the type of policies that leaders pursue. We examine two institutional variables: size of the selectorate (S) -the set of people who have an institutional say in choosing leaders -and the size of the winning coalition (W) -the minimal set of people whose support the incumbent needs in order to remain in power. The larger the winning coalition, the greater the emphasis leaders place on effective public policy. When W is small, leaders focus on providing private goods to their small group of supporters at the expense of the provision of public goods. The size of the selectorate influences how hard leaders work on behalf of their supporters. The greater the size of the selectorate, the more current supporters fear exclusion from future coalitions. This induces a norm of loyalty that enables leaders to reduce their effort and still survive. As a first step towards a theory of endogenous selection of institutions, we characterize the institutional preferences of the different segments of society based on the consequences of these institutions for individual welfare. We conclude by examining the implication of the model for the tenure of leaders, public policy, economic growth, corruption, taxation and ethnic politics.

Alliances are not perfectly credible. Although alliances raise the probability of intervention into war, many allies do not honor their promise in wartime. A formal model of alliances as signals of intentions to explore the credibility of alliances is presented. One state threatens another. A third state shares an interest with the second in preventing the demands of the first. A simple model of a crisis among these three is solved first without an alliance between the second and the third states. The author then allows them the chance to form an alliance before the crisis. Alliances have two effects: (1) the ability of the allies to fight together is increased, and (2) peacetime costs on the allies are imposed. The model with alliances produces a wide range of strategic behaviors. The implications of the model for the formation, credibility, and deterrent effects of alliances are broadly consistent with stylized facts in the literature.

A common argument is that international trade prevents conflict because the possible loss of trade reduces the willingness of both sides to fight. I examine the logic of this argument in the light of game theoretic models of conflict. In such models, crises are contests of relative resolve. Neither side, however, can observe the other side's resolve in totality; resolve has observable and unobservable components. Instead both sides try to judge the other's unobservable resolve from their actions in the crisis. Costly signals play a critical role in the communication of unobservable resolve in these models. If higher trade flows reduce both sides' resolve for war, then the effect of trade on the likelihood of conflict is indeterminate. Trade flows are observable ex ante, and a state contemplating conflict considers its effect on both sides' actions before beginning a dispute. The initiator is less willing to fight, reducing the chance that it initiates a dispute. At the same time, the target is also less willing to fight, increasing the chance that it makes concessions to the initiator to avoid war, and thus increasing the chance that the initiator begins a dispute. The net effect of these two changes is indeterminate. Trade flows could reduce the risk of escalation by increasing the range of costly signals of resolve in a crisis. A greater range of available costly signals increases the efficiency of signaling between the disputants, increasing the chance that they will reach a peaceful settlement.