Munich Personal RePEc Archive

The Role of Noise in Alliance Formation and Collusion in Conflicts

Boudreau, James W. and Sanders, Shane and Shunda, Nicholas (2017): The Role of Noise in Alliance Formation and Collusion in Conflicts.

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Abstract

Many real-world conflicts are to some extent determined randomly by noise. The way in which noise is modeled in contest success functions (CSFs) has has important implications both for the possibility of forming cooperative relationships as well as for the features of such relationships. In a one-shot conflict, we find that when noise is modeled as an exponential parameter in the CSF, there is a range of values for which an alliance between two parties can be beneficial, whereas that is not the case for an additive noise parameter. In an infinitely repeated conflict setting with additive noise, sustaining collusion via Nash reversion strategies is easier the more noise there is and more difficult the larger the contest's prize value, while an increase in the contest's number of players can make sustaining collusion either more or less difficult, all in marked contrast to the case of an exponential noise parameter. Which noise specification is appropriate is therefore an important consideration for modeling any conflict situation.

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