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A Dynamic Theory of Resource Wars

  • Daron Acemoglu
  • Michael Golosov
  • Aleh Tsyvinski
  • Pierre Yared

We develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented. Our focus is on the interaction between the scarcity of resources and the incentives for war in the presence of limited commitment. We show that a key parameter determining the incentives for war is the elasticity of demand. Our first result identifies a novel externality that can precipitate war: price-taking firms fail to internalize the impact of their extraction on military action. In the case of inelastic resource demand, war incentives increase over time and war may become inevitable. Our second result shows that in some situations, regulation of prices and quantities by the resource-rich country can prevent war, and when this is the case, there will also be slower resource extraction than the Hotelling benchmark (with inelastic demand). Our third result is that because of limited commitment and its implications for armament incentives, regulation of prices and quantities might actually precipitate war even in some circumstances where wars would not have arisen under competitive markets. Copyright 2012, Oxford University Press.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 661465000000001171.

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Date of creation: 17 Jan 2011
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Handle: RePEc:cla:levarc:661465000000001171
Contact details of provider: Web page: http://www.dklevine.com/

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  1. Robinson, James A & Torvik, Ragnar & Verdier, Thierry, 2002. "Political Foundations of the Resource Curse," CEPR Discussion Papers 3422, C.E.P.R. Discussion Papers.
  2. Ronald Findlay & Kevin H. O'Rourke, 2007. "Power and Plenty: Trade, War and the World Economy in the Second Millennium (Preface)," Trinity Economics Papers tep0107, Trinity College Dublin, Department of Economics.
  3. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2010. "Social Memory, Evidence, and Conflict," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 559-574, July.
  4. Sandeep Baliga & Tomas Sj–str–m, 2004. "Arms Races and Negotiations," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 351-369, 04.
  5. Giovanni Maggi & Andrés Rodríguez-Clare, 2007. "A Political-Economy Theory of Trade Agreements," American Economic Review, American Economic Association, vol. 97(4), pages 1374-1406, September.
  6. Konstantin Sonin, 2008. "A Theory of Brinkmanship, Conflicts, and Commitments," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 163-183, May.
  7. Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-61, October.
  8. Michelle R. Garfinkel & Stergios Skaperdas & Constantinos Syropoulos, 2009. "International Trade and Transnational Insecurity: How Comparative Advantage and Power are Jointly Determined," CESifo Working Paper Series 2680, CESifo Group Munich.
  9. Sylvain Chassang & Gerard Padro i Miquel, 2008. "Conflict and Deterrence under Strategic Risk," NBER Working Papers 13964, National Bureau of Economic Research, Inc.
  10. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  11. Joan Esteban & Debraj Ray, 2008. "On the Salience of Ethnic Conflict," American Economic Review, American Economic Association, vol. 98(5), pages 2185-2202, December.
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