Abstract
This paper analyses a simple game-theoretic model to highlight the choice of the government between raising its defence expenditures or giving away some “gifts” to his opponents, as a means to defend his position in power. If the government is a Cournot-Nash player, then there is no gift in equilibrium, and any increase in the budget will lead to more inefficient defence expenditures. However, if the government is a Stackelberg-leader, then he will use the “gift” as a tool in his policy for staying in power.
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This paper was originally written for the World Bank project “The Economic Consequences of War/Peace Transitions in Africa: Choices for Public Finance”, led by Sanjay Pradhan. The views expressed are those of the author, and do not necessarily reflect those of the World Bank, whose financial support is gratefully acknowledged. Stimulating discussions with David Bevan, Paul Collier, and Jan Willem Gunning, as well as useful comments by an anonymous referee are also acknowledged, without implicating.
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Azam, JP. How to pay for the peace? A theoretical framework with references to African countries. Public Choice 83, 173–184 (1995). https://doi.org/10.1007/BF01047691
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DOI: https://doi.org/10.1007/BF01047691