High valuations, uncertainty, and war

Abstract

Many theories of war predict conflict becomes more likely as a state increasingly values the prize at stake. This article showcases an important limit. If—as in many cases—a state has uncertainty over its opponent’s material cost of fighting, then increasing the opponent’s valuation can decrease the probability of war. Why? Uncertainty condenses the various types’ reservation values, reducing the peace premium and incentivizing a proposer to make safer offers. We also recover an analogous result under some conditions with uncertainty over power. The results indicate that higher valuations of the prize do not have a clear-cut relationship with the probability of war.

A Discussion on Geopolitical Risk of Taiwan Semiconductor Industry

“…Such exogenous factors, altering the calculation of costs, undermine the explanatory power of opportunity cost theory. Furthermore, uncertainties regarding the future can shift present evaluations of opportunity cost, rendering it an insufficient factor in the reduction of international conflict (Spaniel and Malone 2019;Malone and Spaniel 2021).…”