Peace in the Face of Uncertainty: Resource Allocation with Stochastic Armaments

Abstract: This paper examines a government's strategic resource allocation choices when facing an opposing group whose military power is uncertain. We investigate how this uncertainty affects the government's decision to divide resources in a way that either guarantees peace, despite unresolved uncertainty, or risks conflict. We find that under low uncertainty, the government prefers distributions which ensure peace, while under high uncertainty, they are willing to risk war. When uncertainty is low, the government's allocation is decreasing in uncertainty. When uncertainty is high it is increasing. The latter leads to an increased probability of fighting and falling total welfare.