A MODEL OF THE INTERNATIONAL ARMS MARKET

Sales of arms are a significant component of international trade and r aise a range of pressing policy issues. After a short review of the ma rket, this paper provides a formal model of the trade which allows for competing forward-looking suppliers whose welfare depends on both the economic benefits from the sales and the security repercussions of re cipient behaviour. The recipient's behaviour depends on its military c apability, a function of the stock of arms it has acquired, We first e xamine a myopic recipient, whose behaviour depends on current stocks, then a forward looking recipient for whom questions of the time-consis tency and the credibility of supplier threats to embargo or promises t o resupply become crucial. Finally we examine the impact of supplier c ooperation of the sort currently being discussed in the UN Security Co uncil.