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Signaling in the shadow of conflict

Wolton, Stephane (2018): Signaling in the shadow of conflict.

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Informational asymmetries have long been recognized as one of the causes of wasteful conflicts. Signaling has been found to be an effective tool for interested parties to truthfully communicate private information. Can signaling help reduce the risk of conflict? I study this question in a model in which a Sender sends a signal about his privately known cost of conflict, a Receiver makes an offer, and the Sender decides whether or not to start a conflict. I find that an equilibrium with no conflict exists only if the outcome of conflict depends on the Receiver's offer and the Sender's possible costs are sufficiently apart. Importantly, these conditions are never satisfied in the context of wars where belligerents obtain all or none of a dispute territory. In such context, no information is ever transmitted in equilibrium. Overall, this paper establishes that the shadow of conflict renders signaling quite ineffective to resolve informational asymmetry.

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