| This dissertation asks the question, "What happens if risk is systematically included as a variable in international relations theory?" Borrowing concepts from finance and portfolio theory, such as diversification, discounted cash flow, and binding risk constraints, the author proceeds to apply his hybrid theory---the portfolio valuation approach---to several pressing questions of modern international politics.; In the first application of the portfolio valuation approach, the author addresses issue linkage, or the process of assessing and responding to threats after an exogenous shock. Using a pinch of game theory, the author shows that an actor's portfolio concentration is a critical variable in determining the success or failure of issue linkage threats. Only when portfolio concentration is high can actors make credible the threat to unwind cooperation. But issue linkage is a complicated phenomenon, and the author carefully presents the problems with the use of issue linkage as an ordinary strategy.; The second application, a study of counter-party risk in international politics, builds on the valuation side of the portfolio valuation approach. The author discusses the relevance of state-specific risk, a concept akin to underwriting in insurance or lending. State-specific risk assessment will be of increasing importance in the complex, multipolar post-Cold War era. Based on observations from financial markets, the author cautions policymakers to avoid overpaying for cooperation. Market "bubbles" are common throughout history, and it would be negligent to ignore the danger presented by the improper valuation of cooperation opportunities. One way to minimize this danger is to empower private sector authorities to act as cooperation arbitrageurs. Another option is to re-price cooperation "deals" in terms of superior stores of value.; In the third application of the portfolio valuation approach, the author provides a definitive treatment of the concept of synthetic portfolios; that is, the union of the political and financial into a generic "utility stream." The author makes the controversial argument that rational states should turn to financial markets, even as they become more entangled in political and economic cooperation. States willing to take financial positions will find themselves able to hedge unwanted risk and leverage existing assets, definite competitive advantages. Financial positions, when used as complements to political agreements, will help states minimize the cost of maintaining cooperation, make new cooperation possible and allow many states to artificially construct and reconstruct national portfolios as they see fit and as circumstances demand. In support of this unorthodox strategy, the author addresses the most common criticisms of state intervention in financial markets; concerns ranging from political corruption to market liquidity are addressed. Finally, the author teases the reader with the many possibilities for future research prompted by the paradigm, including a rethinking of longstanding stalwarts such as containment theory and domino theory. The end result of the portfolio valuation approach is the introduction of the reader to a compelling new research program. |
