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Asset Values and the Credibility of Peace Agreements

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Author Info

  • Christopher Coyne

    (Department of Economics, West Virginia University)

  • Gregory Dempster

    (Department of Economics, Hampden-Sydney College)

  • Justin Isaacs

    (Department of Economics, Hampden-Sydney College)

Abstract

Continuous violent conflict is a central cause of economic stagnation in many of the world’s poorest countries. Peace agreements are one common tool used to attempt to break these ‘conflict traps.’ However, these agreements often fail due to the lack of a clear and credible commitment by the parties involved in the contract. We contend that long-term financial asset values will reflect the credibility of the participants to peace agreements because the expectation of sustained peace will result in higher long-term asset prices. We utilize equity index prices from Sri Lanka to test our theory. We also consider the accuracy of equity prices versus other predictors of credibility including exchange rates and survey responses. Our conclusion is that long-term financial asset prices indicate the likelihood of conflict or peace and can inform policies as they relate to conflict-torn states.

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File URL: http://www.be.wvu.edu/div/econ//work/pdf_files/09-07.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 09-07.

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Length: 43 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:wvu:wpaper:09-07

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Web page: http://www.be.wvu.edu/div/econ/
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Related research

Keywords: Capital Markets; Credible Commitment; Peace Agreements; Sri Lanka;

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