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Following Kydland and Prescott's (1977) seminal paper on time-inconsistency, a large literature has explored possible frameworks within which monetary policy could overcome this problem -- neatly illustrated in Barro and Gordon's (1983) model. In a stochastic world there appears to be a trade-off between the necessary `tying of hands' to conquer the effects of time-inconsistency and the desirability of flexible response. It is in principle possible to achieve an optimal outcome by use of a discriminatory punishment, however, with a large punishment (sufficient to deter) for using policy to exploit the Phillips curve to reduce unemployment below the natural rate, but no punishment for contingent response to shocks using the same Phillips curve. This paper sets out a model of democratic elections in which floating voters may find it optimal to follow this strategy. The significance of this possibility is that regimes which permit contingent macroeconomic policy responses, while enabling prior targets to be set and policed, are superior to those which do not. This has relevance to the debate over the Exchange Rate Mechanism and the European Monetary Union.

In their reply to Oneal and Elrod (1989), Murdoch and Sandler defend the joint product model of alliance behavior and respond to several of our criticisms of their work on NATO. The most important point of this rejoinder is that Elrod and I never questioned the theoretical value of the joint product model, only Forbes, Murdoch, and Sandler's application of it to the North Atlantic alliance. We remain unconvinced that NATO made a significant shift from deterrence to defense in 1967 or 1974. The alliance seems throughout its history to be a uniquely privileged group providing a relatively pure public good. Yet, we agree that burden sharing in NATO has changed in important respects over the years, especially after the late 1960s and early 1970s. Elrod and I argued that two influences were important: the decline of U.S. hegemony and, especially, the pursuit of private benefits by the European allies. At first glance, Forbes, Murdoch, and Sandler's emphasis on impure public goods seems unobjectionable. The growth of the Soviet nuclear arsenal undermined the doctrine of massive retaliation; the U.S. formally urged a shift to a defensive strategy as early as 1962; and the alliance announced flexible response in 1967. But did NATO in fact move from deterrence toward defense? If so, it must be detectable not only indirectly in changing allied defense burdens but also by more direct military measures. The defense of territory requires the ability to stalemate or defeat the enemy, not merely to punish it, but Elrod and I found no evidence that the military balance in Europe tilted in NATO's favor in the decade after 1967. The Europeans, whose security was at stake, did not provide new forces. Their defense burdens declined as the Soviet Union's increased. Consequently, the military expenditures of NATO Europe as a percentage of those of the USSR fell from a peak of 67 percent in 1960

Over 1986 and 1987 the tensions in Soviet-American relations which were so apparent in the early 1980s have given way to 'new thinking' in Moscow and a flurry of arms control proposals which five years ago would have been unthinkable. Mr Gorbachev's theme-calls of glasnost (openness) and perestroika (restructuring) at home and 'common security' abroad seem to provide a historic opportunity for improving East-West relations.1 But change also brings with it uncertainty, as old-established policies and strategies have to be rethought. Nowhere is this more apparent than in the field of NATO strategy. In particular the 'global double-zero' agreement of December 1987 between the United States and the Soviet Union on the elimination of both superpowers' intermediate-range nuclear weapons has challenged the very foundations of NATO's 'flexible response' doctrine. In the wake of the double-zero agreement, Western governments have a crucial question to decide on alliance defence orientation: whether to try and continue to work within NATO's present strategic framework, or whether to adopt a new strategic concept. This article will argue that the time is ripe for a major review of NATO strategy and the adoption of a new doctrine which will give military planners clear direction into the 1990s.

Since the atomic era began in 1945, there have been three waves of moral criticism directed at American nuclear weapons policies. The first wave, which began around 1957 and ended in 1962 with McNamara's an nouncement of Flexible Response, focused on Dulles's policy of Massive Retaliation. The second wave, which began in the early 70's and ended in 1974 with Schlesingers announcement of Countervailing Response, fo cused on the Assured Destruction policy developed in McNamara's later reports to Congress. The third wave began in the 80's with Weinberger's remarks about ''prevailing" in nuclear conflicts and may or may not end with the next MX vote or next strategic arms agreement.1 In each wave of criticism there has been a dominant moral note. From the moral point of view, the principal problem with Massive Retaliation is that the damage caused by a massive American retalitory strike would outweigh in scale any injury the United States might receive before the strike is launched. Thus, action according to the policy violates the just war canon of proportionality, which dictates that in a just war the projected damage should not be significantly greater than the damage suffered if the war is not fought. In the case of Assured Destruction, the main moral prob lem is the use of cities as targets and populations as hostages, a feature first dictated by missile inaccuracy and later provoked by the hardening of op posing strategic forces. Action according to Assured Destruction is thus widely thought to violate the just war canon of discrimination, the rule that noncombatants should never be the victims of military force. In the case of Prevailing Response, concern arises that steps taken to assure success in nuclear war increase the probability that nuclear war will be initiated, and that nuclear war, once initiated, cannot be controlled. Thus the Weinberger policy is thought to require reckless and immoral risks.2 The judgment that Massive Retaliation violates Proportionality is to day almost universally accepted, and to some degree this verdict may have influenced the abandonment of the policy, although Massive Retaliation was so riddled with strategic defects that it probably would have been aban doned on prudential grounds even if it had not been morally flawed.3 By contrast, the standard criticisms of Prevailing Response are somewhat