Economic interdependence can just as easily cause more war even between nuclear states

This paper’s main contribution is to identify the precise conditions under which the probability of war increases despite rising opportunity costs. We show that, unlike other mechanisms, rising opportunity costs may counter-intuitively make war more likely because it also increases the difference between reservation points for unresolved versus resolved opponents. As a result, these informational asymmetries can lead states to screen their opponents and risk war. This new finding reshapes our understanding about the relationship between opportunity costs and war. It introduces a more nu-anced mechanism about when and how this relationship operates, sometimes contrary to expectations.

Our work advances economic interdependence theories of war in several ways. First, it provides new insight on the causes of war at odds with traditional cases where opportunity costs increased, yet conflict still erupted. Second, it demonstrates how and when competing effects of economic instruments predominate, driving changes in the probability of conflict. In contrast to previous work, we identify specific conditions under which increasing opportunity costs shifts the probability of conflict, consistent with the empirical evidence. Finally, it demonstrates the important, but subtle, effects of changing instruments, like trade flows, in the presence of uncertainty. The model advances a growing line of research that various sources of uncertainty have disparate effects on crisis bargaining.

This paper has more general implications for trade-conflict research. It complements growing calls to disaggregate the effects of instruments like trade (Martin et al. 2008). Empirical analyses must carefully trace what precisely parties do not know about each other to draw the correct inference. It also suggests states should be careful in interpreting how other states value or benefit from mutual trade flows. A free trade agreement championed by one state may be perceived as relatively less beneficial in another state. This uncertainty may undermine the credibility to abide by the agreement in the long-run.

We also highlight the need for future research to consider screening incentives in trade deals themselves. Although the proposer benefits from greater trade—both from the direct economic benefit and indirect ability to steal more surplus from the receiver— trade can harm unresolved receivers and incentivize screening. This could generate some constraints in the deals a state is willing to sign, in fear that the rearranged incentives under uncertainty could hurt its ability to effectively bluff later. A more unified approach to trade and crisis negotiations would yield additional interesting insights.Moving forward, the results speak to other lines of research in international relations theory predicated on changing costs of conflict. We couched our results in the interdependence literature due its clear application. However, the comparative static speaks to cases where the receiver’s costs increase more generally.23 Framed this way, the results have clear implications for other literatures. For example, standard nuclear deterrence theory argues that possessing nuclear weapons increases the costs of war for potential challengers due to the risk of a retaliatory nuclear response (Morgenthau 1961, 280; Gilpin 1983, 213-219). The logic of alliance formation similarly relics on the assumption that entering these pacts induces peace by raising an opponent’s costs of conflict (Morrow 1994). Together, these mechanisms assume raising the costs of war should decrease conflict. Our results demonstrate this effect is likely more conditional than previously realized. We find increased costs of conflict can exacerbate issues with uncertainty over resolve even if both states possess destructive weaponry. This promises to shed new