Deterrence by Diplomacy

Abstract

This dissertation proposes a liberal version of deterrence theory. I explain the ability of diplomacy, in the form of cheap talk, to change an adversary's mind during an international dispute. Diplomacy works for two reasons. First, states are better-off when others believe their diplomacy: they have both the ability to communicate honestly and the ability to bluff. Second, states that are caught bluffing acquire reputations for bluffing, and others find their diplomacy less credible in future disputes. I motivate the theory using a case study of China's attempt to deter United Nations forces from crossing the Thirty-eighth Parallel during the Korean War. China's threats were dismissed in good part because they came in the context of bluffs over Taiwan. I formalize the argument in a game-theoretic model, an infinitely-repeated game in which states interact with different adversaries over time. Each state has incomplete information as to the other's value for the disputed issue. Using factorization, a version of the Bellman principle (Abreu, Pearce, and Stacchetti 1990), I characterize an equilibrium that has history-dependent strategies, where the histories correspond to reputations. After one set of histories, the defender's speech conveys information to the challenger about whether or not the defender considers the issue important enough to be worth a fight. The challenger is more likely to back down after this more-credible threat. I solve numerically for the threshold points that determine the equilibrium and perform comparative statics. I test liberal deterrence theory using data about more than 200 international disputes from Rousseau (1996) and the International Crisis Behavior project. I develop a statistical model that accounts for the selection effects inherent in international disputes while allowing the exogenous variables to be identical in the estimated equations. The estimates support the theoretical claim that diplomacy has value added, and indeed the effects of reputations are substantively at least as large as those of the balance of forces. As predicted by liberal deterrence theory, whether or not the defender has a reputation for honesty, as so is better able to use diplomacy, strongly affects whether or not each state escalates a dispute.

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