This paper investigates the implications of cooperative and non-cooperative defense spending of allied countries in conflicting blocs using static and leader-follower game models. It is well known that in the three-country world with two allies and an adversary all countries may be worse off when the allies cooperate than when they do not. We show that when the number of countries in each separate bloc is large, the countries in one bloc may be better off by cooperating than not even if the negative spillover from the adversarial bloc is large. Furthermore, cooperative behavior in a leader-follower game by the leader bloc can attain a better outcome than non-cooperation.
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