State capacity and Information Aggregation in International Alliances

Abstract:

Information aggregation is an important feature of alliances. I develop a model of alliances in which each member has some (imperfect) information about a state of the world and they share this information through a public communication protocol. The central result of the paper is the characterization of the conditions for full information aggregation between the members. Crucially, I find that information aggregation depends on the state capacity of individual members, and the degree of misalignment of interests. Greater the misalignment of interests of individual members, the higher is the required state capacity in order to maintain full information aggregation. Further, when interdependencies within the alliance increases, the hawks increase their state capacities while the doves decrease theirs, such that the total capacity remains unchanged.