The Problem of Peace: A Story of Corruption, Destruction, and Rebellion

We demonstrate how the central presence of state institutions in civil wars generates unique explanations for the emergence of destructive war. We do so in a model where a kleptocratic government and an equally self-interested “rebel” rival compete for insecure resources by raising armies from a common labor population. This competition may take one of two forms, “conflict” (which destroys resources, including labor) or “settlement” (which preserves them). We show the government may choose conflict in this setting because conflict enhances the value it derives from its use of fiscal policy. Allowing some of the labor force to be destroyed makes buying loyalty from the remaining population using subsidies less costly. Conversely, destroying some of the insecure resources increases the value of taxation by decreasing the rebel leadership’s recruitment of soldiers away from the tax base. Because we model whether to go to war and the acquisition of military strength as two distinct decisions, we observe novel trade-offs between peace and (socially wasteful) increases in both arming and taxation. We also explore, among other things, how limiting the government’s fiscal capacity may tilt the balance towards settlement.