This paper develops a model of disarmament by incorporating rationing theory into the economic theory of alliance. In order to provide an econometric measure of welfare gain from a disarmament treaty, the author employs the cost functions predicated on rationed and unrationed demand systems. By combining the economic theory of foreign aid with that of alliance, the author examines the impact of disarmament on the developed economies' foreign aid to developing countries as a peace dividend. The model is applied to the case of the U.S. economy under mutual disarmament between NATO and the Warsaw pact. Copyright 1996 by MIT Press.