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Institutional Theory

The institutional theory describes the preference of peace and war as a function of preference of states’ leaders in terms of the states’ international relations. Proponents of this theory considered that warfare has negative or zero payoffs when warfighting is put in place of its goal (second premise). They argue that the cost of war encompasses the cost of warfighting, the cost of defeat and the cost of war-termination. Secondly, the bargain is every time reachable and has greater payments than war. This paper will look at the institutional theory in terms of the cost of war and bargaining. The exponents of this theory win without war, and this is preferable to winning after the war. The paper will also show how Germany overlooked the assumption of the theory to trigger the First World War (WWI).

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Cost of War (Second Premise)

Wars are very costly in terms of the money and resources they consume. Wars are destructive in terms of both financial and human capital; wars disrupt trade, resource exploitation, and labor management. Enormous warfare creates severe economic shocks to the economy of partaking nations. War undercuts prosperity and obstructs economic growth and development. The most common short-term effect of war is inflation. War tends to push prices up and subsequently shrinks living standards. The institutional theorists argue that where the army is used, prices for commodities are high.

Wars are financed by the states. To obtain money to finance the war, states raise taxes. Taxes increase reduces consumer spending and domestic investments. The second way used by the state to finance war is government borrowing, which upsurges government debts. War-related borrowing can drive a country into bankruptcy as it was done to Spain in 1596. The third way to finance war is to duplicate money, which fuels inflation. Industrial warfare, particularly the first and the second World Wars, created penalizing inflation pressure across participating economies. Progressively, the government uncovers entire societies to war-related challenges including recruiting labor, rising prices for industrial and consumer goods, and diverting technology and capital from noncombatant to military application.

In addition to exhausting resources and money from partakers’ states, war creates regions of massive obliteration of assets such as factories, farms, industries, and cities. These destructions adversely reduce the national economic output. The 1618 – 1648 war in Germany killed almost a third of the German population, as armed forces robbed non-combatants so that they became a band of soldiers in their attempt to survive. The war was accompanied by severe famine and an increase in epidemics. The First World War condensed France’s national output by half, famishing thousands of Germans to demise and leading Soviet Union output to decline. The estimated First World War price tag is $400 billion. States that fight beyond their boundaries avoid capital destructions. For example, the US in both the first and second World Wars, Britain in the Napoleonic Wars, and Japan during the First World War tried to avoid capital destruction.

War-prompted epidemics and battle fatalities among other demographic disturbances have extensive effects. For instance, the First World War induced the influenza epidemic that killed millions of people in 1918. Cranna and Bhinda in their book The True Cost of Conflict estimated that more than 10 percent of the deaths in current generations are attributable to indirect and direct war.

Wars have some economic benefits. In specific places and during certain periods of time, war can encourage growth in the state economy for a short time. During the economic crisis, like the 1930 Great Depression, war enlistment and military expenditure can intensify capacity use, decrease unemployment, and convince the public to work harder for fewer reimbursements. War in some instances clears out-of-date infrastructure and permits the economy to restructure, reconstructing the modern structure. For instance, French output in 1950 grew faster than before 1914. War encourages technological development. Governments conduct research to meet military demand in wartime. The railroad network in Europe was influenced by military-strategic considerations, particularly after railroads facilitated German forces to win over French forces in 1871. In the 1990s, the US innovated a GPS system for military purposes, and later the use of GPS became widespread contributing to making profits. Even though these military-related innovations have economic effects, it is not clear whether the funds spent on the war would have shaped more superior novelty.

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Bargaining (Second Deduction)

Bargaining is one of the central features of international relations. Bargaining is a negotiation over certain terms of an agreement. The bargaining process in international relations is relatively complex. Schelling in his book, The Strategy of Conflict argues that bargaining power to a greater extent depends on threats, credibility, and promises. According to Schelling, more financial resources and greater military strength are not the only benefits of bargaining. Contrariwise, Schelling contends that in some instances, restricting some nation’s options may be advantageous. In International Relations (IR), bargaining happens on more than one level. The head of the state may bargain with the colleague, and at the same time bargain with the public over the approval of such a contract. Therefore, the head of the state must consider the pressure from different domestic interest groups, where each pressure group compels the head of state to adopt policies that will favor the state’s interests.

The introduction of bargaining on a domestic level is an essential contribution to bargaining in international relations literature. This also challenges neo-realism and realism state-centered approach, which perceive the states as unitary rational actors. The institutional theory holds that international relations bargaining helps evade war. War is costly to its participants, while through bargaining each side achieves outcomes without incurring costs. Subsequently, war should be regarded as a bargaining failure. Why does bargaining failure in the war arise? Advocates of the institutional theory suggest four reasons why bargaining fails: political bias, indivisibility, asymmetric information, and commitment problems.

Political bias may cause a bargaining failure or war. It is practically the key decision-maker, whether it is the monarch, a member of an oligarchy, an executive or head of state. They may have a war perspective in terms of cost or benefits dissimilar from the states’ population. Therefore, if the key decision-makers are biased in relation to their subjects, a war may occur, regardless of the availability of the binding or enforceable agreements. The decision-maker may not face equal risks as the country’s citizens or the leader may expect greater glory or gains from war than the entire population. For example, in a dictatorial administration, the leader may keep an uneven share of the war benefits and gains. Providing there exists sufficient bias in one country or both countries, it may be impossible to prevent war by any transfer payment. In fact, it is advisable for countries to elect biased leaders because it is believed they lead a country into a robust bargaining position.

Indivisibility problems can result in a war. If states X and Y are bargainings over an indivisible issue that does not permit finer categorized separations or compromise, then there may not exist any possible choice that both countries would prefer fighting. Likewise, if an issue only permits a limited number of solutions, it may happen that none of them falls within the states’ bargaining range. Consider a case where an impartial precise agreement needs to be signed in order to avoid war. If it is impossible to divide the territory of any other natural resources fairly in a manner that will strike an exact balance required, this could result in conflict due to the incapability of reaching a balanced agreement. While some scholars have considered indivisibility as an apparent obstruction to successful bargaining, others have dismissed its significance. Even if it is impossible to subdivide some natural resources, other resources can compensate for indivisible resources.

Asymmetric information arises when a state has more information about its abilities than the other state. Asymmetric information may lead to war. Certainly, if both states know in advance who will be the winner of the war, they will not bother initiating it. However, to know which state will win the war, asymmetric information about potential belligerents must exist. Asymmetric information can be obtained from many sources. It can be symmetry information about the strength of states differ in terms of the quality of armaments, military quality, tactics and personnel, geography, determination, political climate, and the relative possibility of different war outcomes. Both states may receive inconsistent information, and they will both be optimistic and convinced that they will benefit from war. In this case, war can erupt only when inconsistency of beliefs is greater than the cost of war so that bargaining is the best strategy. For example, if both states have a high expectation of winning a war, there would be no agreement that can make them evade the war.

War can occur if states fail to obligate themselves credibly to follow terms of the negotiated agreement. Commitment glitches perhaps are the universal reason for bargaining failure. The commitment applies to many features of agreements that may help in avoiding war, encompassing promise to make transfers and not to attack in the future. A mutually desirable bargain is attainable if and only if no one is willing to renege on the terms. The insinuation of the incapacity to assure a long-term agreement has been realized for many centuries. For instance, commitment failure underscores the basic anarchic state described by Hobbes in his book Leviathan. Hobbes argues that because of distrust of the man, the most reasonable way to ensure one is safe is to attack first.

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The most common commitment challenge is the obvious one. A state is delivering resources failing to trust the other by anticipating that it may demand more resources or even an attack after receiving the resources. A remarkable bargaining failure caused by lack of commitment was witnessed in 1938 when Adolf Hitler attacked Czechoslovakia despite the availability of an agreement. The most appropriate remedy to commitment problems is to make transfer payments carefully and in phases. However, this approach does not always work. It can effectively work in a number of circumstances, depending on possible transfers, the patience of countries, and how costly or attractive the war is.

The Role of Germany in the First World War

The major cause of the First World War was Germany’s determination to become a superpower by overwhelming France and Russia. The assassination of Franz Ferdinand made Serbs, and not Germans or Austrians, to be the war perpetrators. However, Fromkin in his book Europe’s Last Summer: who started the Great War in 1914 postulates that it is German army officers who ignited the war. Contrary to institution theory that advocates for a win without war, Germany opted to fuel the war in Serbia. On the 2nd of July Britain attempted to organize an international political conference to resolve the worsening dispute between Serbia and Austria-Hungary. Italy, Russia, and France agreed to participate, but Germany refused. This indicates that Germany was not ready to participate in international bargaining advocated for by the institutional theory.

Germany wanted to use the Serbia-Austria crisis to achieve fait accompli end of Serbia existence as an independent power. Germany wanted the attack to be initiated and last for a short period of time. Germany wanted Austria to beat Serbs and make it peaceful as soon as possible. This underscores the institutional theorists’ claim that some head of the state participates in the war in an attempt to seek personal glory but not the best interest of the citizenry body. Germany attacked neutral Belgium on 5 August 1914. The day before the invasion, Germany had presented an ultimatum requesting Belgium to permit its troops to pass through the territory. King Albert of Belgium rejected the request, and this led to the German invasion of Belgium, violating Belgium neutrality. Belgium’s perpetual neutrality was mandated by a treaty concluded by European powers that are Germany, Britain, and France. German violation of the European Power Treaty over Belgium is a clear indicator of how states fail to remain committed to bargaining agreements that the institutional theory advocates for.

Britain sent an ultimatum requesting Germany to withdraw its troops from Belgium, but it was rejected. Following Britain’s ultimatum rejection by Germany, it declared war on Germany on 4 August 1914. This declaration has bound all countries dominated by the British Empire encompassing New Zealand, India, Canada, and South Africa. On August 6, the British and French invaded German colony Togo making the German governor surrender. There were two wars that were being fought at the same time: Serbia against Austria, and Germany against Great Britain, Russia, and France. The former was triggered by Austria while the latter was triggered by Germany. Europe did not enter a war by accident, rather it was a result of two governments’ premeditated decisions.


Wars cost has zero if not negative payoff when the fight is considered in place of goals of fighting. There is always bargaining that has a greater payoff than the war. War cost includes the destruction of infrastructure, loss of lives, inflation, and enormous economic outcomes. However, war has some economic benefits as it encourages economic growth in the short run. Institutional theorists hold to the opinion that international bargaining helps in minimizing war among states. However, in some instances, they fail to do so, and war arises. Some of the possible causes of bargaining failure are; political bias, indivisibility, asymmetric information and commitment problems. Germany participated in the WWI is a flawless example of how countries initiate war after overlooking the institutional theory assumptions.