Alliance Formation and Better-Shot Global Public Goods: Theory and Simulation

Abstract

In this paper, we examine the process of global order formation during the early days of the Cold War from the viewpoint of Global Public Good (GPG). Focusing on the alliance formation, we specify contributions as exogenous and membership as endogenous. Our theoretical analysis reveals that alliance formation depends on the aggregation technology of the GPG and on the potential GPG, which is the amount of the GPG provided by the largest alliance of the feasible. When a big country with the greater potential GPG overestimates its opponent’ s GPG provision, the two big countries divide the world into two blocs, as the US and the USSR did during the Cold War. The simulation based on actual military spending in 1947 also suggests that the Western bloc’ s overestimation of the threat from the Eastern bloc might have accelerated the expansion of both blocs.