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Cycles of Distrust: An Economic Model

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  • Daron Acemoglu
  • Alexander Wolitzky

Abstract

We propose a model of cycles of distrust and conflict. Overlapping generations of agents from two groups sequentially play coordination games under incomplete information about whether the other side consists of “extremists” who will never take the good/trusting action. Good actions may be mistakenly perceived as bad/distrusting actions. We also assume that there is limited information about the history of past actions, so that an agent is unable to ascertain exactly when and how a sequence of bad actions originated. Assuming that both sides are not extremists, spirals of distrust and conflict get started as a result of a misperception, and continue because the other side interprets the bad action as evidence that it is facing extremists. However, such spirals contain the seeds of their own dissolution: after a while, Bayesian agents correctly conclude that the probability of a spiral having started by mistake is sufficiently high, and bad actions are no longer interpreted as evidence of extremism. At this point, one party experiments with a good action, and the cycle restarts. We show how this mechanism can be useful in interpreting cycles of ethnic conflict and international war, and how it also emerges in models of political participation, dynamic inter-group trade, and communication - leading to cycles of political polarization, breakdown of trade, and breakdown of communication.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 786969000000000502.

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Date of creation: 11 Sep 2012
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Handle: RePEc:cla:levarc:786969000000000502

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Cited by:
  1. Matthias Doepke & Fabrizio Zilibotti, 2013. "Culture, Entrepreneurship, and Growth," NBER Working Papers 19141, National Bureau of Economic Research, Inc.
  2. Hannes Mueller & Dominic Rohner & David Schoenholzer, 2013. "Tectonic Boundaries and Strongholds: The Religious Geography of Violence in Northern Ireland," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 13.04, Université de Lausanne, Faculté des HEC, DEEP.
  3. Vasiliki Fouka & Hans-Joachim Voth, 2013. "Reprisals Remembered: German-Greek Conflict and Car Sales during the Euro Crisis," Working Papers 726, Barcelona Graduate School of Economics.
  4. Della Vigna, Stefano & Enikolopov, Ruben & Mironova, Vera & Petrova, Maria & Zhuravskaya, Ekaterina, 2013. "Cross-border media and nationalism: Evidence from Serbian radio in Croatia," CEPREMAP Working Papers (Docweb), CEPREMAP 1312, CEPREMAP.
  5. Jan Fidrmuc, 2012. "How Persistent is Social Capital?," CEDI Discussion Paper Series, Centre for Economic Development and Institutions(CEDI), Brunel University 12-04, Centre for Economic Development and Institutions(CEDI), Brunel University.

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