The arms trade and the stability of regional arms races

Arms sales to countries involved in regional conflicts raise a range of pressing policy issues. This paper models the interaction between two potentially hostile countries who spend their national income on arms imports and consumption goods. Their welfare depends on consumption and military security. Military security is a function of relative arms stocks and depends on the relative advantages of aggressive and defensive strategies. We examine the dynamic game for noncooperative and regional arms control regimes. An innovation of the paper is the inclusion of the price of arms which proves to have a major effect on the stability of arms races