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

The problem of ensuring that chief executives act in accordance with t he wishes of their constituency is particularly acute in the area of f oreign intervention where the head of state can be expected to possess substantial information advantages. This paper presents a formal anal ysis of strategies that can be used to deter overly passive and overly aggressive executives and a discussion of their side effects. The typ ically large amount of uncertainty means that the constituency must ba se its decision to retain an executive on the outcome of a conflict an d not on its apparent ex ante advisability. This uncertainty imposes a cost on the constituency, who may remove an effective, ''innocent'' e xecutive unnecessarily, and it also imposes a cost on the well-meaning executive, who may be removed from office after making the best possi ble decision in a difficult case. The mechanism necessary to deter exe cutive adventurism also causes the paradoxical ''gambling for resurrec tion'' effect, in which an unsuccessful war that a well-informed princ ipal would terminate is continued because cessation would, given the c urrent state of the world, cause the agent to be removed from office.