Decentralised information transmission in the shadow of conflict

Abstract

Miscalculations due to lack of information are often seen as one of the main causes of war. Yet, a privately informed country has multiple channels to share information and avoid a costly conflict. I study three ways information can be transmitted – sunk cost signals, audience costs, and military build-up. In a fully decentralised setting, where the uninformed country can perfectly adjust its response to the information it learns, the three channels produce very different outcomes. Sunk cost signals never transmit any information. Information transmission is possible with audience costs when the uninformed country sufficiently values peace. With military build-up, information transmission occurs by accident. It is a by-product of the privately informed country’s attempt to increase its strength. I contrast these findings with the case of a constrained uninformed country that can only choose between a limited number of offers.