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Asset Values and the Credibility of Peace Agreements

Author

Listed:
  • Christopher Coyne

    (Department of Economics, West Virginia University)

  • Gregory Dempster

    (Department of Economics, Hampden-Sydney College)

  • Justin Isaacs

    (Department of Economics, Hampden-Sydney College)

Abstract

Continuous violent conflict is a central cause of economic stagnation in many of the world’s poorest countries. Peace agreements are one common tool used to attempt to break these ‘conflict traps.’ However, these agreements often fail due to the lack of a clear and credible commitment by the parties involved in the contract. We contend that long-term financial asset values will reflect the credibility of the participants to peace agreements because the expectation of sustained peace will result in higher long-term asset prices. We utilize equity index prices from Sri Lanka to test our theory. We also consider the accuracy of equity prices versus other predictors of credibility including exchange rates and survey responses. Our conclusion is that long-term financial asset prices indicate the likelihood of conflict or peace and can inform policies as they relate to conflict-torn states.

Suggested Citation

  • Christopher Coyne & Gregory Dempster & Justin Isaacs, 2009. "Asset Values and the Credibility of Peace Agreements," Working Papers 09-07, Department of Economics, West Virginia University.
  • Handle: RePEc:wvu:wpaper:09-07
    as

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    File URL: http://be.wvu.edu/phd_economics/pdf/09-07.pdf
    File Function: First version, 2009
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital Markets; Credible Commitment; Peace Agreements; Sri Lanka;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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