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Using realist models of international politics that deemphasize the two-level security game that states play, most analyses of hegemonic decline argue thai decline is caused by the differential growth of power between hegemons and challenging states. The authors argue that decline is affected highly by states' resource extraction and allocation decisions, and that the international and domestic consequences of these decisions must be analyzed. A model of how stales respond to external and internal security threats is outlined mid analyzed via computer simulation. The authors find thai slates arc likely to decline if they overemphasize increasing capabilities to deter threats instead of allocating resources to reduce opponents' willingness to attack. In addition, a more "dovish" allocation strategy can be very effective against internal threats. Thus the decline of hegemons and rise of challengers is determined as much by strategies as by constraints posed by the system structure. [ABSTRACT FROM AUTHOR]