IDEAS home Printed from https://ideas.repec.org/p/zur/econwp/013.html
   My bibliography  Save this paper

War signals: a theory of trade, trust and conflict

Author

Listed:
  • Dominic Rohner
  • Mathias Thoenig
  • Fabrizio Zilibotti

Abstract

We construct a dynamic theory of civil conflict hinging on inter-ethnic trust and trade. The model economy is inhabitated by two ethnic groups. Inter-ethnic trade requires imperfectly observed bilateral investments and one group has to form beliefs on the average propensity to trade of the other group. Since conflict disrupts trade, the onset of a conflict signals that the aggressor has a low propensity to trade. Agents observe the history of conflicts and update their beliefs over time, transmitting them to the next generation. The theory bears a set of testable predictions. First, war is a stochastic process whose frequency depends on the state of endogenous beliefs. Second, the probability of future conflicts increases after each conflict episode. Third, "accidental" conflicts that do not reflect economic fundamentals can lead to a permanent breakdown of trust, plunging a society into a vicious cycle of recurrent conflicts (a war trap). The incidence of conflict can be reduced by policies abating cultural barriers, fostering inter-ethnic trade and human capital, and shifting beliefs. Coercive peace policies such as peacekeeping forces or externally imposed regime changes have instead no persistent effects.

Suggested Citation

  • Dominic Rohner & Mathias Thoenig & Fabrizio Zilibotti, 2011. "War signals: a theory of trade, trust and conflict," ECON - Working Papers 013, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:013
    as

    Download full text from publisher

    File URL: http://www.econ.uzh.ch/static/wp/econwp013.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2010. "Persistence of Civil Wars," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 664-676, 04-05.
    2. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, pages 83-95.
    3. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-751, August.
    4. Kala Krishna & Cemile Yavas, 2004. "Lumpy consumer durables, market power, and endogenous business cycles," Canadian Journal of Economics, Canadian Economics Association, pages 375-391.
    5. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, pages 87-112.
    6. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Civil Wars and International Trade," Journal of the European Economic Association, MIT Press, pages 541-550.
    7. Jeffrey C. Ely & Juuso Välimäki, 2003. "Bad Reputation," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 785-814.
    8. repec:cup:apsrev:v:97:y:2003:i:01:p:75-90_00 is not listed on IDEAS
    9. Fearon, James D., 1995. "Rationalist explanations for war," International Organization, Cambridge University Press, vol. 49(03), pages 379-414, June.
    10. Paul Collier & Dominic Rohner, 2008. "Democracy, Development, and Conflict," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 531-540, 04-05.
    11. Raquel Fernandez, 2007. "Culture as Learning: The Evolution of Female Labor Force Participation over a Century," NBER Working Papers 13373, National Bureau of Economic Research, Inc.
    12. Karl R. Derouen JR & Jacob Bercovitch, 2008. "Enduring Internal Rivalries: A New Framework for the Study of Civil War," Journal of Peace Research, Peace Research Institute Oslo, vol. 45(1), pages 55-74, January.
    13. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, Oxford University Press, pages 1015-1049.
    14. Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
    15. Marshall Burke & John Dykema & David Lobell & Edward Miguel & Shanker Satyanath, 2010. "Climate and Civil War: Is the Relationship Robust?," NBER Working Papers 16440, National Bureau of Economic Research, Inc.
    16. Philippe Aghion & Yann Algan & Pierre Cahuc, 2011. "Civil Society And The State: The Interplay Between Cooperation And Minimum Wage Regulation," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 3-42, February.
    17. Nicholas Sambanis, 2001. "Do Ethnic and Nonethnic Civil Wars Have the Same Causes?," Journal of Conflict Resolution, Peace Science Society (International), vol. 45(3), pages 259-282, June.
    18. Nicholas Sambanis, 2008. "Short- and Long-Term Effects of United Nations Peace Operations," World Bank Economic Review, World Bank Group, vol. 22(1), pages 9-32, January.
    19. Avinash Dixit, 2003. "Trade Expansion and Contract Enforcement," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1293-1317, December.
    20. Felbermayr, Gabriel J. & Toubal, Farid, 2010. "Cultural proximity and trade," European Economic Review, Elsevier, pages 279-293.
    21. Yared, Pierre, 2010. "A dynamic theory of war and peace," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1921-1950, September.
    22. Sandeep Baliga & Tomas Sjöström, 2004. "Arms Races and Negotiations," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 351-369.
    23. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Oxford University Press, pages 865-900.
    24. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    25. World Bank, 2012. "World Development Indicators 2012," World Bank Publications, The World Bank, number 6014.
    26. Gartzke, Erik, 1999. "War Is in the Error Term," International Organization, Cambridge University Press, vol. 53(03), pages 567-587, June.
    27. Matthias Doepke & Fabrizio Zilibotti, 2008. "Occupational Choice and the Spirit of Capitalism," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 747-793.
    28. Hauk, Esther & Saez-Marti, Maria, 2002. "On the Cultural Transmission of Corruption," Journal of Economic Theory, Elsevier, vol. 107(2), pages 311-335, December.
    29. Halvard Buhaug & Scott Gates & Päivi Lujala, 2009. "Geography, Rebel Capability, and the Duration of Civil Conflict," Journal of Conflict Resolution, Peace Science Society (International), vol. 53(4), pages 544-569, August.
    30. Reuven Glick & Alan M. Taylor, 2010. "Collateral Damage: Trade Disruption and the Economic Impact of War," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 102-127, February.
    31. Powell, Robert, 2006. "War as a Commitment Problem," International Organization, Cambridge University Press, vol. 60(01), pages 169-203, January.
    32. repec:hal:journl:halshs-00641280 is not listed on IDEAS
    33. Matthew O. Jackson & Massimo Morelli, 2007. "Political Bias and War," American Economic Review, American Economic Association, pages 1353-1373.
      • Jackson, Matthew O. & Morelli, Massimo, "undated". "Political bias and war," Working Papers 1247, California Institute of Technology, Division of the Humanities and Social Sciences.
    34. Mathias Dewatripont & Jean Tirole, 2005. "Modes of Communication," Journal of Political Economy, University of Chicago Press, vol. 113(6), pages 1217-1238, December.
    35. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
    36. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The cost of banking regulation," Proceedings 937, Federal Reserve Bank of Chicago.
    37. Ingelaere, Bert, 2007. "Living the transition: a bottom-up perspective on Rwanda’s political transition," IOB Discussion Papers 2007.06, Universiteit Antwerpen, Institute of Development Policy (IOB).
    38. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-950, October.
    39. Rohner, Dominic, 2011. "Reputation, group structure and social tensions," Journal of Development Economics, Elsevier, pages 188-199.
    40. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, pages 455-470.
    41. Collier, Paul & Hoeffler, Anke, 1998. "On Economic Causes of Civil War," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 563-573, October.
    42. Paul Collier & Anke Hoeffler & Dominic Rohner, 2009. "Beyond greed and grievance: feasibility and civil war," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 1-27, January.
    43. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, pages 7-35.
    44. Timothy Besley & Torsten Persson, 2011. "The Logic of Political Violence," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1411-1445.
    45. Paul Collier & Anke Hoeffler, 2004. "Greed and grievance in civil war," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 563-595, October.
    46. Dercon, Stefan & Gutiérrez-Romero, Roxana, 2012. "Triggers and Characteristics of the 2007 Kenyan Electoral Violence," World Development, Elsevier, vol. 40(4), pages 731-744.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jonas Hjort, 2013. "Ethnic Divisions and Production in Firms," CESifo Working Paper Series 4449, CESifo Group Munich.
    2. Stefano Costalli & Luigi Moretti & Costantino Pischedda, 2017. "The economic costs of civil war," Journal of Peace Research, Peace Research Institute Oslo, pages 80-98.
    3. Francesco Caselli & Massimo Morelli & Dominic Rohner, 2015. "The Geography of Interstate Resource Wars," The Quarterly Journal of Economics, Oxford University Press, vol. 130(1), pages 267-315.
    4. Couttenier, Mathieu & Preotu, Veronica & Rohner, Dominic & Thoenig, Mathias, 2016. "The Violent Legacy of Victimization: Post-Conflict Evidence on Asylum Seekers, Crimes and Public Policy in Switzerland," CEPR Discussion Papers 11079, C.E.P.R. Discussion Papers.
    5. Mueller, Hannes & Rohner, Dominic & Sch�nholzer, David, 2017. "The Peace Dividend of Distance: Violence as Interaction Across Space," CEPR Discussion Papers 11897, C.E.P.R. Discussion Papers.
    6. Cornelius Christian & James Fenske, 2015. "Economic shocks and unrest in French West Africa," CSAE Working Paper Series 2015-01, Centre for the Study of African Economies, University of Oxford.
    7. Bluhm, Richard & Gassebner, Martin & Langlotz, Sarah & Schaudt, Paul, 2016. "Fueling conflict? : (De)escalation and bilateral aid," MERIT Working Papers 053, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. Dominic Rohner & Mathias Thoenig & Fabrizio Zilibotti, 2013. "Seeds of distrust: conflict in Uganda," Journal of Economic Growth, Springer, vol. 18(3), pages 217-252, September.
    9. Daron Acemoglu & Alexander Wolitzky, 2012. "Cycles of Distrust: An Economic Model," Levine's Working Paper Archive 786969000000000502, David K. Levine.
    10. Yikai Wang & Simon Alder, 2017. "Divide and Rule: An Origin of Polarization and Ethnic Conflict," 2017 Meeting Papers 1242, Society for Economic Dynamics.
    11. Alessandra Cassar & Pauline Grosjean & Sam Whitt, 2013. "Legacies of violence: trust and market development," Journal of Economic Growth, Springer, vol. 18(3), pages 285-318, September.
    12. Xin, Guangyi, 2017. "Trust and Economic Performance: A Panel Study," MPRA Paper 80815, University Library of Munich, Germany.
    13. repec:ebd:wpaper:159 is not listed on IDEAS
    14. Ola Olsson, 2016. "Climate Change and Market Collapse: A Model Applied to Darfur," Games, MDPI, Open Access Journal, vol. 7(1), pages 1-27, March.
    15. Erik O. Kimbrough & Kevin Laughren & Roman Sheremeta, 2017. "War and Conflict in Economics: Theories, Applications, and Recent Trends," Discussion Papers dp17-10, Department of Economics, Simon Fraser University.
    16. Algan, Yann & Cahuc, Pierre, 2014. "Trust, Growth, and Well-Being: New Evidence and Policy Implications," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 2, pages 49-120 Elsevier.
    17. Doepke, Matthias & Zilibotti, Fabrizio, 2014. "Culture, Entrepreneurship, and Growth," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 1-48 Elsevier.
    18. Yann Algan & Pierre Cahuc, 2014. "Trust, Well-Being and Growth: New Evidence and Policy Implications," Post-Print hal-01169659, HAL.
    19. Morelli, Massimo & Rohner, Dominic, 2015. "Resource concentration and civil wars," Journal of Development Economics, Elsevier, pages 32-47.
    20. Fenske, James & Kala, Namrata, 2017. "1807: Economic shocks, conflict and the slave trade," Journal of Development Economics, Elsevier, pages 66-76.
    21. Morelli, Massimo & Rohner, Dominic, 2015. "Resource concentration and civil wars," Journal of Development Economics, Elsevier, pages 32-47.
    22. Francesco Caselli, 2012. "The Geography of Inter-State Resource Wars," 2012 Meeting Papers 1174, Society for Economic Dynamics.
    23. Gunes Gokmen, 2012. "Economic Clash? The Role of Cultural Cleavages in Bilateral Trade Relations," EcoMod2012 4252, EcoMod.
    24. repec:gam:jgames:v:7:y:2016:i:1:p:9:d:66071 is not listed on IDEAS
    25. Achyuta Adhvaryu & James Fenske, 2013. "War, resilience and political engagement in Africa," CSAE Working Paper Series 2013-08, Centre for the Study of African Economies, University of Oxford.

    More about this item

    Keywords

    Beliefs; civil war; conflict; cultural transmission; ethnic fractionalization; human capital investments; learning; matching; peacekeeping; stochastic war; strategic complementarity; trade;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zur:econwp:013. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser). General contact details of provider: http://edirc.repec.org/data/seizhch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.