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The Economics of Conflict

The Economics of Conflict: Theory and Empirical Evidence

edited by Karl Wärneryd
Copyright Date: 2014
Published by: MIT Press
Pages: 304
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  • Book Info
    The Economics of Conflict
    Book Description:

    Modern economics has largely ignored the issue of outright conflict as an alternative way of allocating goods, assuming instead the existence of well-defined property rights enforced by an undefined third party. And yet even in ostensibly peaceful market transactions, conflict exists as an outside option, sometimes constraining the outcomes reached through voluntary agreement. In this volume, economists offer a crucial rational-choice perspective on conflict, using methodological approaches that range from the game theoretic to the experimental. Several chapters use the recently developedcontest success functionto model conflict, examining such topics as alliance formation, regional conflicts under fiscal federalism, coups d'etat in developing countries, and the correlation between conflict and economic growth in Bolivia. Other chapters consider subjects that include the link between occupational choices and antigovernment activity in Afghanistan, social unrest and the IMF's Structural Adjustment Program, and the effect of Tajikistan's civil war on ex-combatants' capacity for trust and cooperation. Taken together, these contributions show that economics needs a theory of conflict to understand both outright conflict and transactions in the shadow of conflict. But beyond this, they show that the study of conflict also needs the rigorous, methodology-based perspectives of economics.ContributorsVincenzo Bove, Raul Caruso, Alessandra Cassar, Jacopo Costa, Maria Cubel, Leandro Elia, Jose Luis Evia, Davide Fiaschi, Pauline Grosjean, Ruixue Jia, Kai A. Konrad, Roberto Laserna, Pinghan Liang, Roberto Ricciuti, Stergios Skaperdas, Caleb Stroup, Karl Wärneryd, Sam Whitt, Ben Zissimos

    eISBN: 978-0-262-32197-6
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Series Foreword
    (pp. vii-viii)

    This book is part of the CESifo Seminar Series. The series aims to cover topical policy issues in economics from a largely European perspective. The books in this series are the products of the papers and intensive debates that took place during the seminars hosted by CESifo, an international research network of renowned economists organized jointly by the Center for Economic Studies at Ludwig-Maximilians-Universität, Munich, and the Ifo Institute for Economic Research. All publications in this series have been carefully selected and refereed by members of the CESifo research network....

  4. Preface
    (pp. ix-x)
    Karl Wärneryd
  5. Introduction
    (pp. xi-xviii)
    Karl Wärneryd

    According to Pinker (2011), the world has recently become a much less violent place, at least in proportional terms. One of the explanations he suggests for this development is the impact of Enlightenment moral philosophy and classical liberalism on the average Western person’s attitude toward violence. In short, people realized that peaceful exchange in a market is a nicer and more efficient way of allocating goods than is war.

    Perhaps this explains why modern economics, which also has its origin in the Enlightenment and is directly related to classical liberal political philosophy, has largely ignored the issue of outright conflict...

  6. 1 Strategic Aspects of Fighting in Alliances
    (pp. 1-22)
    Kai A. Konrad

    Players who have a common goal often form alliances. In many instances there are multiple rival alliances, with the success of one alliance ruling out the success of the other alliances, and military alliances, political parties, R&D alliances, and team competition in sports are some of the most salient examples for this type of competition. It has been pointed out by economists for a long time that such alliances have to bridge two potentially important disadvantages compared to standalone players: a free-rider problem and a holdup problem.

    The free-rider problem results because alliance members, when contributing effort to the success...

  7. 2 Fiscal Equalization and Political Conflict
    (pp. 23-40)
    Maria Cubel

    Fiscal equalization is a redistribution device that serves to correct vertical fiscal unbalances and to diminish horizontal inequity between regions. According to the Canadian Constitution Act, 1982, Section 36 (2), the purpose of equalization is to ensure “that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.” It also works as an insurance (risk-sharing)¹ mechanism. Fiscal equalization schemes are used in many countries: two well-documented examples are the systems in place in Canada and in the German Länder.¹

    The level of fiscal equalization determines the degree of solidarity among regional...

  8. 3 Natural Resources, Social Conflict, and Poverty Trap
    (pp. 41-78)
    Davide Fiaschi

    Many countries whose output is concentrated in primary sectors show low growth rates (see Auty 2001; Sachs and Warner 2001; Mehlum et al. 2006; Humphreys et al. 2007a). The literature has proposed many complementary explanations of the phenomenon, denoted as thecurse of natural resources, among which are (1) strong exports of natural resources change terms of trade and crowding out of traded-manufacturing activities (Sachs and Warner 2001), (2) rents from natural resources distort the allocation of investments (e.g., less incentive to invest in education; see Gylfason 2001), and (3) rents from natural resources encourage strong rent-seeking activities and/or social...

  9. 4 A Game of Thrones: Power Structure and the Stability of Regimes
    (pp. 79-104)
    Ruixue Jia and Pinghan Liang

    It’s a long intellectual history that the power structure might affect the stability of regime. In chapter 4 ofThe Prince, Niccolo Machiavelli famously investigated “Why the Kingdom of Darius, Conquered by Alexander, Did Not Rebel against the Successors of Alexander at His Death.” He compared the contemporary Ottoman regime and French regime. In terms of power structure, the Ottoman domain was more centralized, and “once it is conquered, great ease in holding it. . . .” French domains were decentralized, and “one can easily enter there by gaining over some baron of the kingdom . . . but if...

  10. 5 The Probability of Military Rule in Africa, 1970 to 2007
    (pp. 105-126)
    Raul Caruso, Jacopo Costa and Roberto Ricciuti

    Since the start of the so-called third wave in 1974, and the acceleration after the fall of the Berlin Wall in 1989, democratization has been impressive. According to the Economist Intelligence Unit (2011), one-half of the world’s population now lives in a democracy of some sort. More specifically, 12.3 percent lives in full democracies, 37.2 percent in flawed democracies, 14.0 percent in hybrid regimes, and still 36.5 percent in authoritarian regimes. Authoritarian regimes, in which the military plays a direct (when a junta rules the country) and indirect role (when the army guarantees the monopoly of violence for a civilian...

  11. 6 Sociopolitical Conflict and Economic Performance in Bolivia
    (pp. 127-176)
    Jose Luis Evia, Roberto Laserna and Stergios Skaperdas

    Many existing approaches to understanding economic performances in low-income countries have not been particularly useful (see Easterly 2001 for a critical review of the various approaches). With all the technological and organizational advances that have occurred over the past half century, let alone the advances that had taken place earlier than that, it would be difficult to understand the economic stagnation of countries like Bolivia if one were to rely solely on economic factors as explanatory variables.

    It has therefore become increasingly evident that social and political variables, as well as economic ones, are crucial to improving economic performance.¹ Recent...

  12. 7 Occupational Choices and Insurgency in Afghanistan’s Provinces
    (pp. 177-208)
    Vincenzo Bove and Leandro Elia

    Afghanistan is a landlocked, mountainous, and sparsely populated country, with an area of 647,500 square kilometers, the same size as Texas, and bordered by Iran, the People’s Republic of China, and the Central Asian republics of Turkmenistan, Uzbekistan, and Tajikistan. Afghanistan is strategically positioned between Central Asia and the Middle East and is crucial for the political stability of the entire region, given its particular geographic location. It has been historically inhabited by a tribal society, divided into several tribes and clans. Afghanistan is also one of the world’s poorest countries; its population, estimated at almost 30 million, is largely...

  13. 8 Social Unrest in the Wake of IMF Structural Adjustment Programs
    (pp. 209-230)
    Caleb Stroup and Ben Zissimos

    The Structural Adjustment Programs (SAPs) of the International Monetary Fund (IMF) have long been criticized for allegedly worsening well-being in the countries where they are imposed.¹ It is claimed that they may reduce welfare, exacerbate income inequalities, and ultimately provoke social unrest as those in society hit by the SAPs lash out in response. Stiglitz (2002) provides an account of the possible effects of SAPs when he writes: “For decades, people in the developing world have rioted when the austerity programs imposed on their countries [by the IMF] proved to be too harsh . . .” (p. 3). “For the...

  14. 9 Social Preferences of Ex-Combatants: Survey and Experimental Evidence from Postwar Tajikistan
    (pp. 231-262)
    Alessandra Cassar, Pauline Grosjean and Sam Whitt

    This chapter uses unique game-behavioral and survey evidence collected in postwar Tajikistan with the goal of better understanding the relationship between violence and pro-social behavior and, ultimately, the implications of violent conflicts for market development and institution building.

    Recent studies have found surprising increases in pro-social behavior following exposure to violence, providing micro-level explanations for how societies might recover and develop even after devastating experiences (Bauer et al. 2011; Bellows and Miguel 2009; Blattman 2009; Voors et al. 2011). War has also been suggested to play a critical role in many macro-historical accounts of how nations develop and how political...

  15. Contributors
    (pp. 263-264)
  16. Index
    (pp. 265-286)