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Explaining Conflict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future

  • Michael McBride


    (Department of Economics, University of California-Irvine)

  • Stergios Skaperdas


    (Department of Economics, University of California-Irvine)

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.

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Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 050606.

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Length: 23 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:irv:wpaper:050606
Contact details of provider: Postal: Irvine, CA 92697-3125
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  1. Paul Collier & V. L. Elliott & Håvard Hegre & Anke Hoeffler & Marta Reynal-Querol & Nicholas Sambanis, 2003. "Breaking the Conflict Trap : Civil War and Development Policy," World Bank Publications, The World Bank, number 13938.
  2. Genicot, C. & Skaperdas, S., 2000. "Investing in Confict Management," Papers 00-01-17, California Irvine - School of Social Sciences.
  3. McBride, Michael, 2005. "Crises, reforms, and regime persistence in sub-Saharan Africa," European Journal of Political Economy, Elsevier, vol. 21(3), pages 688-707, September.
  4. Gradstein, Mark, 2004. "Governance and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 505-518, April.
  5. Gregory D. Hess, 2003. "The Economic Welfare Cost of Conflict: An Empirical Assessment," CESifo Working Paper Series 852, CESifo Group Munich.
  6. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  7. Acemoglu, Daron & Robinson, James A, 1998. "Why did the West Extend the Franchise? Democracy, Inequality and Growth in Historical Perspective," CEPR Discussion Papers 1797, C.E.P.R. Discussion Papers.
  8. Halvor Mehlum & Karl Moene, 2006. "Fighting against the odds," Economics of Governance, Springer, vol. 7(1), pages 75-87, 01.
  9. Stergios Skaperdas, 2007. "An Economic Approach to Analyzing Civil War," Working Papers 060715, University of California-Irvine, Department of Economics.
  10. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, vol. 63(2), pages 101-112, November.
  11. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
  12. Michelle R Garfinkel & Stergios Skaperdas, 2001. "Conflict Without Misperceptions or Incomplete Information: How the Future Matters," Levine's Working Paper Archive 563824000000000011, David K. Levine.
  13. repec:bla:restud:v:54:y:1987:i:1:p:1-21 is not listed on IDEAS
  14. Skaperdas, Stergios & Syropoulos, Constantinos, 1996. "Can the shadow of the future harm cooperation?," Journal of Economic Behavior & Organization, Elsevier, vol. 29(3), pages 355-372, May.
  15. Gradstein, Mark, 2002. "Governance and Growth," CEPR Discussion Papers 3270, C.E.P.R. Discussion Papers.
  16. Bester, Helmut & Konrad, Kai A., 2002. "Delay in contests
    [Verzögerung in Konfliktsituationen]
    ," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-20, Social Science Research Center Berlin (WZB).
  17. repec:bla:restud:v:60:y:1993:i:3:p:543-73 is not listed on IDEAS
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