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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.

Suggested Citation

  • Michael McBride & Stergios Skaperdas, 2005. "Explaining Conflict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future," CESifo Working Paper Series 1636, CESifo.
    • Handle: RePEc:ces:ceswps:_1636
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    Cited by:

    1. Hoffmann, Magnus, 2007. "The Social Benefit of War," MPRA Paper 6196, University Library of Munich, Germany.
    2. Stergios Skaperdas, 2006. "Bargaining Versus Fighting," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(6), pages 657-676.
    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. Beviá, Carmen & Corchón, Luis C., 2013. "Endogenous strength in conflicts," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 297-306.
    5. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 2, chapter 22, pages 649-709, Elsevier.
    6. McBride, Michael & Skaperdas, Stergios, 2014. "Conflict, settlement, and the shadow of the future," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 75-89.
    7. Petros G. Sekeris, 2014. "The tragedy of the commons in a violent world," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 521-532, September.
    8. Stefano Battilossi & Stefan O. Houpt, 2009. "Predicting institutional collapse: stock markets, political violence and the Spanish Civil War, 1920-36," Working Papers 9002, Economic History Society.
    9. Heijdra, Ben J. & Ligthart, Jenny E., 2010. "The Transitional Dynamics Of Fiscal Policy In Small Open Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 14(1), pages 1-28, February.
    10. repec:dau:papers:123456789/179 is not listed on IDEAS
    11. Christopher Blattman & Edward Miguel, 2010. "Civil War," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 3-57, March.
    12. Stergios Skaperdas, 2008. "An economic approach to analyzing civil wars," Economics of Governance, Springer, vol. 9(1), pages 25-44, January.
    13. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.

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    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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