Enigma [Job Market Paper]

This paper examines the role of private information in conflict. While acting on information can provide an advantage, using it can expose its source and diminish its value in the long run. I study this trade-off empirically, focusing on the Battle of the Atlantic during World War II. There, Allied merchant ships faced Nazi U-boats, which regularly communicated their positions with German central command using Enigma encryption. The Allies secretly broke these codes. I combine novel data on decrypted messages with records of U-boat and merchant ship losses. Using an event-study design, I show that U-boat sinkings of Allied ships fell by 80 percent in the days following position reports, likely due to the rerouting of merchant ships. In contrast, U-boats’ own survival declined only marginally. Allied strikes were selective, prioritizing high-capacity commanders and increasing over time—consistent with the Allies strategically forgoing benefits to protect their information access. Counterfactual simulations suggest that military intelligence prevented 40 percent of potential shipping losses.