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Defense and Welfare Under Rivalry
Author(s) -
Panagariya Arvind,
Shibata Hirofumi
Publication year - 2000
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00091
Subject(s) - comparative statics , rivalry , economics , consumption (sociology) , welfare , public good , nash equilibrium , mathematical economics , rest (music) , constant (computer programming) , microeconomics , market economy , computer science , physics , social science , sociology , acoustics , programming language
Two small countries facing a constant probability of war with each other import arms for consumption goods from the rest of the world. The defense good, produced by combining arms and army, is a public good. The reaction curve depicting the optimal supply of the defense good turns out to be backward‐bending. Nevertheless, at least one of the reaction curves is positively sloped at the unique Nash equilibrium. Several comparative statics results are derived. For example, if one country's reaction curve is negatively sloped, military aid to the rival leads to a decline in its optimal supply of the defense good.