Empirical research suggests that the existence of territorial disputes makes armed conflict more likely to occur. Yet, there are many states that have engaged in militarized interstate disputes that not only maintain normalized bilateral relations, but cooperate with one another on an increasing number of bilateral issues. How can disputing states like Argentina and the UK so frequently cooperate with each other on bilateral issues when there remains a significant amount of tension regarding their territorial dispute over the Falklands/Malvinas Islands? Our theory suggests that challengers involved in territorial disputes are willing to engagein bilateral cooperation with their adversaries in order to influence upcoming territorial settlement attempts. Bilateral cooperation is purposively and strategically used by the challengers as a form of confidence building measure (CBM) with the goal of reducing the negative impact of the territorial dispute. Empirical analyses of monthly data (1978—2003) on Argentina—UK relations, as well as qualitative evidence from the case, support our theoretical expectations by showing that challengers deliberately link cooperation on bilateral issues to territorial dispute settlement attempts as a form of bargaining incentive to increase the likelihood of peaceful resolution.
