Reducing the Effects of Moral Hazard: Institutional Designs Within International Alliances

Abstract

What explains the level of commitment within an international military alliance? Specifically, when do alliances choose to adopt active military support for offensive uses of force versus lower levels of commitment? Drawing on the rational design of international institutions literature, this paper argues that the choice of commitment is a conscious effort to address two competing problems. The first is the potential for entrapment. Allies worry that commitments may lead other member states to act in a risky fashion, creating unnecessary conflict. The other problem is the need to demonstrate commitment in order to maximize the bargaining power of the member states. The former problem leads allies to choose lower levels of commitment like defense pacts in order to signal to alliance members what types of behaviors are acceptable. Conversely, the latter problem encourages states to make broader obligations about when they will use force. Empirically, concern for moral hazard should be more likely when there are power disparities amongst members within an alliance. Greater levels of threat facing alliance members should lead states to favor maximizing their commitments. These two arguments are tested empirically on all alliances from 1816-1992 with results supporting both conjectures.