Manipulating the Balance of Power: Arms Transfers and the Delegation of Power Politics (pdf)

Abstract: States frequently turn to allies, clients and non-state armed groups to help deter threats, compel policy concessions and fight wars. How do delegating states (principals) get their agents to advance the principal's objectives over the agent's own priorities? I advance two arguments. First, the use of conditional inducements is less common than traditionally thought because typical features of international politics generate severe moral hazard. Moral hazard arises from hidden action but also from a novel source: when principals are unable to sanction shirking because of domestic or bureaucratic actors with a vested interest in maintaining a status-quo relationship with the agent. Second, I argue that principals also incentivize agents by manipulating the balance of power between the agent and its adversaries, through military transfers and defense assurances to these adversaries. These equilibrating commitments prevent the agent from using military power to improve outcomes vis-\`a-vis its adversaries and thus creates relative incentives for the agent to advance the principal's objective instead. To test whether equilibrating is an important delegating strategy, I consider evidence from policymaker interviews and panel data of post-World War II arms transfers. Fixed-effects analysis finds patterns that are consistent with delegating states using equilibrating strategies to resolve agency problems. Historical analysis of an influential case -- U.S. arms transfers to Burma -- validates the findings. This research has broader implications for the study of external balancing and the arms trade.