Designing Signals for Deterrence

Abstract

States and alliances spend enormous resources signaling resolve to deter adversaries. Two canonical strategies are burning money (sunk costs) and burning bridges (audience costs). Large audience costs can deter effectively, but they may be infeasible and, even when feasible, can increase the likelihood of war relative to burning money. We propose a signaling design in which the defender retains the flexibility to fight or back down but commits ex ante, before learning its resolve, to a rule mapping realized resolve into costly actions. When audience costs are limited, this design raises defender payoffs while reducing the likelihood of war. We discuss implementation through laws and automated algorithms. We also characterize defender payoffs when audience costs are chosen endogenously from a feasible set, showing that lowering the maximum feasible audience cost can raise defender payoffs, and we compare these payoffs with those under the standard burning-money setting without commitment.