Conflict, Agency, and Gambling for Resurrection: The Principal-Agent Problem Goes to War

TLDR

Ensuring that chief executives act in line with their constituency is especially difficult in foreign intervention, where leaders have significant information advantages and decisions hinge on conflict outcomes rather than pre‑advisability. The paper aims to formally analyze strategies to deter overly passive and overly aggressive executives. It discusses the side effects of these deterrence strategies. Uncertainty forces the constituency to risk removing effective executives and the well‑meaning executive to risk removal after optimal decisions, and the deterrence mechanism paradoxically encourages continued war to avoid agent removal.

Abstract

The problem of ensuring that chief executives act in accordance with the wishes of their constituency is particularly acute in the area of foreign intervention where the head of state can be expected to possess substantial information advantages. This paper presents a formal analysis of strategies that can be used to deter overly passive and overly aggressive executives and a discussion of their side effects. The typically large amount of uncertainty means that the constituency must base its decision to retain an executive on the outcome of a conflict and not on its apparent ex ante advisability. This uncertainty imposes a cost on the constituency, who may remove an effective, innocent executive unnecessarily, and it also imposes a cost on the well-meaning executive, who may be removed from office after making the best possible decision in a difficult case. The mechanism necessary to deter executive adventurism also causes the paradoxical gambling for resurrection effect, in which an unsuccessful war that a well-informed principal would terminate is continued because cessation would, given the current state of the world, cause the agent to be removed from office.