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(Chapter in Proxy Wars: Suppressing Transnational Threats through Local Agents, edited by Eli Berman and David Lake)
How can powerful countries enlist the aid of local proxies to control security disturbances? This volume uses a principal-agent framework to evaluate how the U.S. and other powerful states can secure compliant behavior from proxy governments. The German occupation of Denmark usefully illustrates the benefits and challenges inherent to such relationships—and, in particular, the fact that domestic opposition within the agent state can inhibit cooperation. As an occupying power, Germany could credibly threaten to punish Denmark if the Danish cabinet declined to abide by German instructions. Germany used this leverage to extract high compliance from its agents in Copenhagen early in the occupation. However, as the war progressed the Danish cabinet faced mounting political pressure from constituents who opposed their government's close relationship with Germany. Under extreme pressure from citizens, the Danish cabinet eventually refused to continue complying with German demands. Unable to motivate its former agent, Berlin was instead forced to sever the diplomatic relationship and to impose martial law.