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War and natural resource exploitation

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  • van der Ploeg, Frederick
  • Rohner, Dominic

Abstract

We build a theoretical framework that allows for endogenous conflict behaviour (i.e., fighting efforts) and for endogenous natural resource exploitation (i.e., speed, ownership, and investments). While depletion is spread in a balanced Hotelling fashion during peace, the presence of conflict creates incentives for rapacious extraction, as this lowers the stakes of future contest. This voracious extraction depresses total oil revenue, especially if world oil demand is relatively elastic and the government’s weapon advantage is weak. Some of these political distortions can be overcome by bribing rebels or by government investment in weapons. The shadow of conflict can also make less efficient nationalized oil extraction more attractive than private extraction, as insecure property rights create a holdup problem for the private firm and lead to a lower license fee. Furthermore, the government fights less intensely than the rebels under private exploitation, which leads to more government turnover. Without credible commitment to future fighting efforts, private oil depletion is only lucrative if the government’s non-oil office rents are large and weaponry powerful, which guarantees the government a stronger grip on office and makes the holdup problem less severe.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 8 ()
Pages: 1714-1729

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:8:p:1714-1729

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Conflict; Natural resources; Voracious extraction; Private resource exploitation; Exploration investment; License fee; Rebels;

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Citations

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Cited by:
  1. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
  2. Frederick van der Ploeg, 2012. "Resource Wars and Confiscation Risk," OxCarre Working Papers 097, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. van der Ploeg, Frederick, 2006. "Challenges and Opportunities for Resource Rich Economies," CEPR Discussion Papers 5688, C.E.P.R. Discussion Papers.
  4. Massimo Morelli & Dominic Rohner, 2010. "Natural Resource Distribution and Multiple Forms of Civil War," HiCN Working Papers 80, Households in Conflict Network.
  5. Burger, Martijn & Ianchovichina, Elena & Rijkers, Bob, 2013. "Risky business : political instability and greenfield foreign direct investment in the Arab world," Policy Research Working Paper Series 6716, The World Bank.
  6. Tim Willems & Shaun Larcom & Mare Sarr, 2014. "Dictators Walking the Mogadishu Line: How Men Become Monsters and Monsters Become Men," Economics Series Working Papers 701, University of Oxford, Department of Economics.
  7. Enrique Calfucura, 2011. "Natural Resources, Conflict and Democratization," Working Papers 30, Facultad de Economía y Empresa, Universidad Diego Portales.

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