Inducing Deterrence through Moral Hazard in Alliance Contracts

TitleInducing Deterrence through Moral Hazard in Alliance Contracts
Publication TypeJournal Article
Year of Publication2014
AuthorsBenson BV, Meirowitz A, Ramsay KW
JournalJournal of Conflict Resolution
Date Publishedmar
ISBN Number0022-0027$\backslash$r1552-8766
KeywordsAlliances, Bargaining, Game theory, Moral hazard
AbstractDo military alliances foster aggressive behavior in allies to the point of undermining the security goal of the alliance? Like others, we find that alliance commitments may cause moral hazard because allies do not fully internalize the costs of actions that can lead to war. But unlike others, we show that the effect of moral hazard can improve security. Moral hazard can be the driving force behind generating deterrence and avoiding costly conflict. Aggressors may refrain from initiating crises if their target enjoys additional resources from its ally and so is more willing to fight back. So rather than incurring costs moral hazard may be the very key to deterring potential aggressors and minimize the risk of conflict. This behavior allows alliance partners to capture a “deterrence surplus,” the gains from avoiding conflict.