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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.

Suggested Citation

  • van der Ploeg, Frederick & Rohner, Dominic, 2012. "War and natural resource exploitation," European Economic Review, Elsevier, vol. 56(8), pages 1714-1729.
  • Handle: RePEc:eee:eecrev:v:56:y:2012:i:8:p:1714-1729
    DOI: 10.1016/j.euroecorev.2012.09.003
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    More about this item

    Keywords

    Conflict; Natural resources; Voracious extraction; Private resource exploitation; Exploration investment; License fee; Rebels;
    All these keywords.

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts

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