Signaling Strength with Handicaps

Abstract

In the presence of incomplete information, strong states have an incentive to invest in costly signals that can differentiate them from weaker states. I argue that states can signal strength by handicapping themselves, deliberately reducing their combat effectiveness. In an ultimatum crisis bargaining model, I show that strong states can reduce the risk of war by making themselves weaker without reducing their demands. The key to this result is a comparative advantage that allows stronger types to fight more effectively with handicaps. This allows for an equilibrium where (1) stronger states adopt larger handicaps, thereby revealing their strength to the receiver, (2) larger handicaps are more likely to deter the receiver, and, (3) the positive risk of war precludes weaker types from imitating handicap signals. The ability to reveal strength peacefully has important ramifications for theories of mutual optimism, war termination, and the relationship between parity and war incidence.