http://gametheory101.com/courses/international-relations-101/
Due to incentives to misrepresent, it is difficult to differentiate the strong versus the weak in international relations. Costly signals help out here, as types that do not care much about the issues are unwilling to pay such expenses. This can lead to welfare improvement.
In the context of economic sanctions, the lost trade can serve as such a costly signal. Sanctions, while inefficient, occur because they are *less* inefficient than alternative means of conflict resolution.
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