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Explaining Conflict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future

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  • Michael McBride
  • Stergios Skaperdas

Abstract

We examine two factors that help explain the prevalence of conflict in low-income countries: that adversaries cannot enforce long-term contracts in arms, and that open conflict alters the future strategic positions of the adversaries differently than does peace. Using an infinite horizon model, we show the conditions under which adversaries will not be able to sustain short-term contracts even though doing so is Pareto superior to open conflict. Conflict arises because adversaries attempt to gain future strategic supremacy that only victory in conflict brings. Lower incomes or wages, as well as higher discount factors and the less destructive conflict is, the higher is the likelihood of war.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-12/cesifo1_wp1636.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1636.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1636

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  1. Harris, Christopher & Vickers, John, 1987. "Racing with Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 1-21, January.
  2. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
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  4. Stergios Skaperdas, 2007. "An Economic Approach to Analyzing Civil War," Working Papers 060715, University of California-Irvine, Department of Economics.
  5. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  6. Genicot, C. & Skaperdas, S., 2000. "Investing in Confict Management," Papers 00-01-17, California Irvine - School of Social Sciences.
  7. Garfinkel, M.R. & Skaperdas, S., 2000. "Conflict without Misperceptions or Incomplete Information: how the Future Matters," Papers 99-00-11, California Irvine - School of Social Sciences.
  8. Bester, Helmut & Konrad, Kai A., 2002. "Delay in contests," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-20, Social Science Research Center Berlin (WZB).
  9. Gregory D. Hess, 2003. "The Economic Welfare Cost of Conflict: An Empirical Assessment," CESifo Working Paper Series 852, CESifo Group Munich.
  10. Budd, Christopher & Harris, Christopher & Vickers, John, 1993. "A Model of the Evolution of Duopoly: Does the Asymmetry between Firms Tend to Increase or Decrease?," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 543-73, July.
  11. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, vol. 63(2), pages 101-112, November.
  12. Mehlum, Halvor & Moene, Karl, 2005. "Fighting against the odds," Memorandum 03/2005, Oslo University, Department of Economics.
  13. Gradstein, Mark, 2002. "Governance and Growth," CEPR Discussion Papers 3270, C.E.P.R. Discussion Papers.
  14. Skaperdas, Stergios & Syropoulos, Constantinos, 1996. "Can the shadow of the future harm cooperation?," Journal of Economic Behavior & Organization, Elsevier, vol. 29(3), pages 355-372, May.
  15. McBride, Michael, 2005. "Crises, reforms, and regime persistence in sub-Saharan Africa," European Journal of Political Economy, Elsevier, vol. 21(3), pages 688-707, September.
  16. Paul Collier & V. L. Elliott & Håvard Hegre & Anke Hoeffler & Marta Reynal-Querol & Nicholas Sambanis, 2003. "Breaking the Conflict Trap : Civil War and Development Policy," World Bank Publications, The World Bank, number 13938, October.
  17. Gradstein, Mark, 2004. "Governance and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 505-518, April.
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Cited by:
  1. Stergios Skaperdas, 2006. "Bargaining Versus Fighting," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(6), pages 657-676.
  2. Blattman, Christopher & Miguel, Edward, 2009. "Civil War," Center for International and Development Economics Research, Working Paper Series qt90n356hs, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  3. Michael McBride & Gary Milante & Stergios Skaperdas, 2011. "Peace and War With Endogenous State Capacity," Journal of Conflict Resolution, Peace Science Society (International), vol. 55(3), pages 446-468, June.
  4. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
  5. Stergios Skaperdas, 2007. "An Economic Approach to Analyzing Civil War," Working Papers 060715, University of California-Irvine, Department of Economics.
  6. Petros G. Sekeris, 2012. "The Tragedy of the Commons in a Violent World," Working Papers 1213, University of Namur, Department of Economics.
  7. Hoffmann, Magnus, 2007. "The Social Benefit of War," MPRA Paper 6196, University Library of Munich, Germany.
  8. Carmen Beviá & Luis C. Corchón, 2011. "Endogenous strength in conflicts," Economics Working Papers we1113, Universidad Carlos III, Departamento de Economía.
  9. Michael McBride & Stergios Skaperdas, 2009. "Conflict, Settlement, and the Shadow of the Future," CESifo Working Paper Series 2897, CESifo Group Munich.
  10. Christopher Blattman & Edward Miguel, 2009. "Civil War: A Review of Fifty Years of Research," Working Papers id:2231, eSocialSciences.
  11. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, Elsevier.

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