Bargaining over Costly Signals

signal figure

Abstract: Uncertainty over resolve is a central explanation for war, and costly signaling has become a textbook solution the problem. However, costly signals are an imperfect alternative—they resolve inefficiencies by creating inefficiencies, and I show that the equilibrium signaling inefficiency is often worse than the equilibrium war inefficiency if signaling were impossible. Would states prefer to negotiate a fully efficient resolution instead? I develop a model to answer this question. In equilibrium, the uninformed actor often “buys out” the informed party’s costly signaling option. This can occur even if the signal would be perfectly informative and come at no direct cost to the uninformed actor. Moreover, where armaments are greatest in traditional costly signaling models, they are the smallest when allowing for preemptive bargains.

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