Hedging as Risk Management: Insights from Works on Alignment, Riskification, and Strategy

Abstract

The concept of hedging enjoys increasing use and attention in studies of international relations, particularly with respect to secondary states in the context of great power relations and competition. Increasingly, there is a consensus that hedging is a form of risk management. However, debates about the nature of hedging and its conceptual boundaries remain undecided, which has also limited attempts to theorize hedging. This working paper aims to move beyond existing controversies by clarifying unaddressed and unresolved questions relating to hedging. Specifically, the paper engages in a dialogue with the literatures on alignment, risk, and strategic theory to develop a coherent way of thinking about hedging and to set important theoretical markers for further academic discussion. The paper clarifies the relationship between hedging and external balancing, including underbalancing, by distinguishing the risk-based logic of hedging from the threat-based logic of balancing. It highlights insights regarding the construction of risks and how their management differs from the management of securitized threats. This paper also demonstrates the usefulness of drawing on strategic theory to steer future efforts to theorize hedging. In particular, it shows how strategic theory can help us think more clearly about the ends, ways, and means of hedging, its strategic effects, its relationship to domestic politics, and why hedging strategies may fail. Above all, this paper demonstrates the utility of conceiving of and analyzing hedging as a strategy to address state-based risks to core national security objectives.

Keywords: Hedging, alignment, risk, strategy, balancing, underbalancing, riskification