Peace agreements without commitment

Abstract

In this paper we present a model of war between two rational and completely informed players. We show that in the absence of binding agreements war can be avoided in many cases by one player transferring money to the other player. In most cases, the "rich" country transfers part of her money to the "poor" country. Only when the military proficiency of the "rich" country is sufficiently great, it could be that the "poor" country can stop the war by transfering part of its resources to the "rich" country.