Conflict, defense spending, and the number of nations

This paper provides a formal model of endogenous border formation and choice of defense spending in a world with international conflict. We examine both the case of democratic governments and of dictatorships. The model is consistent with three observations. First, breakup of countries should follow a reduction in the likelihood of international conflicts. Second, the number of regional conflicts between smaller countries may increase as a result of the breakup of larger countries. Third, the size of the peace dividend (the reduction in defense spending in a more peaceful world) is limited by the process of country breakup.