Peace Agreements without Commitment

In this paper we present a model of war between two rational and completely informed players. We show that in the absence of binding agreements war can be avoided in many cases by one player transferring money to the other player. In most cases, the “rich” country transfers part of its money to the “poor” country. But when the military proficiency of the “rich” country is sufficiently high the “poor” country stops the war by transferring part of its resources to the “rich” country. War cannot be avoided by transfers when inequality of resources is very large or the cost of war is sufficiently low.