The Reasons Behind Prolonged Wars: Insights from Asymmetric Information
Wars, especially long-lasting ones, have a devastating impact on families, communities, and entire populations. From a rational standpoint, war is highly inefficient. If both sides of a conflict had perfect information about their likelihood of winning and the costs associated with war, it would be logical for them to reach a resolution without engaging in prolonged conflict. However, the reality is that wars happen, and one popular theory among game theorists attributes this to asymmetric information.
Asymmetric information occurs when one side possesses more knowledge about their own strength than the other side. This knowledge asymmetry often leads to war because the side with better information has an incentive to bluff and appear stronger than they actually are to negotiate a better deal. Conversely, the side with poorer information is skeptical of the other side's claims, suspecting that they might be bluffing. This breakdown in negotiations can prolong conflicts.
While some scholars argue that asymmetric information alone cannot fully explain the occurrence of long wars, a recent paper by Sandeep Baliga and Tomas Sjostrom confirms that asymmetric information does play a significant role in prolonging conflicts. Their research explores the effectiveness of third-party interventions in bolstering one side of a conflict. They find that interventions can be unpredictable and may even lengthen wars, as providing support to a weak rebel group can incentivize bluffing and prolong the conflict.
The Coase conjecture, named after economist Ronald Coase, also sheds light on the challenges of resolving conflicts caused by asymmetric information. The conjecture suggests that negotiations should be quickly resolved if negotiation opportunities are plentiful. However, in reality, wars persist for extended periods. Baliga and Sjostrom's research challenges the Coase conjecture, demonstrating that the possibility of collapse for either party and the unknown probability of collapse for the weaker group impact the negotiation process. These factors incentivize weaker groups to fight rather than accept a poor deal and encourage governments to fight weak rebel groups instead of offering generous deals.
The key insight from their research is that negotiations fail when one party fears receiving a bad deal that they would regret. This fear of regret can be compared to a used-car market, where a buyer fears paying too much for a lemon. Similarly, in conflicts, governments may prefer to fight weak rebel groups rather than give up territory that a strong rebel group would desire. This preference for fighting over negotiating prolongs wars.
When it comes to third-party interventions, Baliga and Sjostrom's analysis highlights the complexities involved. Well-meaning interventions can sometimes backfire and lengthen wars. Providing moderate support to a weak rebel group may increase the incentives for bluffing, while taking actions to weaken the government can raise the cost of offering a favorable deal to the rebel group, further prolonging the conflict.
Drawing implications from their research, Baliga and Sjostrom suggest that decisive third-party intervention, offering overwhelming support to a weaker group, can minimize the bluffing factor and potentially shorten the conflict. This insight has relevance for groups like NATO and the U.S. as they consider how to intervene in conflicts such as the one between Ukraine and Russia. By bolstering Ukraine's strength and making it known to Russia, third parties can reduce the need for bluffing and potentially bring about a quicker resolution.
In conclusion, understanding the role of asymmetric information in prolonging wars provides valuable insights into the dynamics of conflicts. Baliga and Sjostrom's research highlights the challenges posed by information asymmetry and the complexities of third-party interventions. By considering these factors, policymakers can make more informed decisions to mitigate the duration and impact of conflicts.
Implications of Asymmetric Information in Prolonged Wars for US Business Market and New Companies
The research conducted by Sandeep Baliga and Tomas Sjostrom on the role of asymmetric information in prolonging wars offers a unique perspective that can be applied to the US business market and new companies. The concept of asymmetric information, where one party has more knowledge about their strength than the other, is not only relevant in the context of wars, but also in business negotiations and competition.
In a business context, asymmetric information can lead to prolonged negotiations, conflicts, and even market inefficiencies. New companies, particularly those in highly competitive industries, may find themselves in a similar situation, where they have less information about the market or their competitors. This could lead to a bluffing scenario, where companies may exaggerate their strengths to negotiate better deals or to deter competitors.
The research also highlights the complexities of third-party interventions, which in a business context could be seen as mergers, acquisitions, or strategic partnerships. These interventions can sometimes have unintended consequences, such as prolonging conflicts or escalating competition.
In conclusion, the insights from this research can help businesses and policymakers better understand the dynamics of conflicts and negotiations. By considering the role of asymmetric information and the potential impact of third-party interventions, businesses can make more informed decisions, potentially leading to more efficient markets and healthier competition.
Original Story By: Kellogg School of Management at Northwestern University