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International Trade and Stable Resolutions of Resource Disputes

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  • Michelle R. Garfinkel
  • Constantinos Syropoulos

Abstract

We consider a dynamic setting in which two sovereign states with overlapping ownership claims on a resource/asset first arm and then choose whether to resolve their dispute violently through war or peacefully through settlement. Both approaches depend on the states’ military capacities, but have very different outcomes. War precludes the possibility of international trade and can be destructive; however, once a winner is declared, arming is unnecessary in future periods. By contrast, a peaceful resolution avoids destruction and supports mutually advantageous trade; yet, settlements must be renegotiated in the shadow of arming and the threat of war. In this setting, we characterize the conditions under which peace arises as a stable equilibrium over time. We find that, depending on the destructiveness of war, time preferences, and the initial distribution of resource endowments, greater gains from trade can reduce arming and pacify international tensions. Even when the gains from trade are relatively small, peace might be sustainable, but only for more uneven endowment distributions.

Suggested Citation

  • Michelle R. Garfinkel & Constantinos Syropoulos, 2022. "International Trade and Stable Resolutions of Resource Disputes," CESifo Working Paper Series 10040, CESifo.
    • Handle: RePEc:ces:ceswps:_10040
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    References listed on IDEAS

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    More about this item

    Keywords

    interstate war; armed peace; unarmed peace; security policies; gains from trade; shadow of the future;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D30 - Microeconomics - - Distribution - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F10 - International Economics - - Trade - - - General
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F60 - International Economics - - Economic Impacts of Globalization - - - General

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