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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. The interaction between the scarcity of resources and the incentives for war in the presence of limited commitment is at the center of our theory. 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 intertemporal distortions. In particular, resource extraction will tend to be slower than that prescribed by the Hotelling rule, which is the rate of extraction in the competitive environment. Our third result is that, due to limited commitment, such regulation can also precipitate war in some circumstances in which war is avoided in the competitive environment.

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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. 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.
  2. Ronald Findlay & Kevin H. O'Rourke, 2007. "Power and Plenty: Trade, War and the World Economy in the Second Millennium (Preface)," The Institute for International Integration Studies Discussion Paper Series iiisdp205, IIIS.
  3. Sandeep Baliga & Tomas Sjostrom, 2001. "Arms Races and Negotiations," NajEcon Working Paper Reviews 391749000000000005, www.najecon.org.
  4. 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.
  5. Maggi, Giovanni & Rodriguez-Clare, Andres, 2005. "A Political-Economy Theory of Trade Agreements," CEPR Discussion Papers 5321, C.E.P.R. Discussion Papers.
  6. 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.
  7. James A. Robinson & Ragnar Torvik & Thierry Verdier, 2003. "Politcal Foundations of the Resource Curse," DELTA Working Papers 2003-33, DELTA (Ecole normale supérieure).
  8. Sylvain Chassang & Gerard Padró i Miquel, 2010. "Conflict and Deterrence under Strategic Risk," The Quarterly Journal of Economics, MIT Press, vol. 125(4), pages 1821-1858, November.
  9. Joan Esteban & Debraj Ray, 2008. "On the Salience of Ethnic Conflict," American Economic Review, American Economic Association, vol. 98(5), pages 2185-2202, December.
  10. 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.
  11. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
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