Abstract
The Allies' decision to enforce the reparations agreement in the Treaty of Versailles is examined as a Bayesian game where the Allies are uncertain about Germany's capacity to pay reparations. The initial decision to enforce the Treaty is shown to be the Bayes/Nash equilibrium of the game. Subsequent revisions consistent with Keynes' interpretation of the Treaty satisfy the conditions of communication equilibrium. As such, the revisions are strategically justified as equilibria that are consistent with the Allies' (and Keynes') discussions on how to revise the Treaty.
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