CONFLICT, AGENCY, AND GAMBLING FOR RESURRECTION - THE PRINCIPAL-AGENT PROBLEM GOES TO WAR

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.