The Social Benefit of War

Hoffmann, Magnus (2007): The Social Benefit of War.

Abstract

Recent findings in economic theory show that cooperation (settlement) between two identical players with conflicting interests in a valuable and contestable resource always Pareto dominates violent dispute (war), given that cooperation is presented using a symmetric bargaining norm. Necessary conditions for settlement to arise are the destructibility of war, and the costless and exogenous enforcement of any agreement made by the two players. We show that endogenous enforcement of the agreements alters the incentives of the players to bargain. This causes a shift in the Pareto frontier so that - under certain conditions - war Pareto dominates settlement.

• Item Type: MPRA Paper
• Language: English
• Keywords: contests, property rights, endogenous enforcement, bargaining
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory ; Matching Theory; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

References

- Acemoglu, D., Pischke, J.-S., 1999. The structure of wages and investment in general training. The Journal of Political Economy 107, 539–572. - Anbarci, N., Skaperdas, S., Syropoulos, C., 2002. Comparing bargaining solutions in the shadow of conflict: How norms against threats can have real effects. Journal of Economic Theory 106, 1–16. - Cai, H., 2003. War or peace. Contributions to Economic Analysis & Policy 2. Crawford, V. P., 1981. Arbitration and conflict resolution in labor-management bargaining. The American Economic Review 71, 205–210. - Crawford, V. P., 1982. A theory of disagreement in bargaining. Econometrica 50, 607–637. - Downs, G., Rocke, D., 1990. Tacit Bargaining, Arms Races, and Arms Control. University of Michigan Press. - Garfinkel, M. R., March 1990. Arming as a strategic investment in a cooperaequilibrium. The American Economic Review 80 (1), 50–68. - Garfinkel, M. R., Skaperdas, S., 2000. Conflict without misperceptions or incomplete information: how the future matters. The Journal of Conflict Resolution 44, 793–807. - Garfinkel, M. R., Skaperdas, S., 2007. Handbook of Defense Economics - Defense in a Globalized World. Vol. 2. New York: North-Holland, Ch. Economics of Conflict: An Overview, pp. 649–709. - Grossman, H. I., May 2001. The creation of effective property rights. American Economic Review 91 (2), 347–52. - Grossman, H. I., Kim, M., December 1995. Swords or lowshares? a theory of the security of claims to property. The Journal of Political Economy 103 (6), 1275–88. - Kalai, E., Smorodinsky, M., 1975. Other solutions to nash’s bargaining problem. Econometrica 43, 513–518. - Kolmar, M., 2003. Perfectly secure property rights, incentives, and the shadow of appropriation. unpublished. - McBride, M., Skaperdas, S., 2006. Explaining conflict in low-income countries: Incomplete contracting in the shadow of the future. - McDonald, I. M., Solow, R. M., 1981.Wage bargaining and employment. The American Economic Review 71, 896–908. - Morrow, J. D., 1986. A spatial model of international conflict. The American Political Science Review 80, 1131–1150. - Morrow, J. D., 1987. On the theoretical basis of a measure of national risk attitudes. International Studies Quarterly 31, 423–438. - Nash, J. F. J., 1950. The bargaining problem. Econometrica 18, 155–162. - Neary, H. M., May 1996. To fight or not to fight: Equilibrium structure in a conflict model when conflict is costly. - Powell, R., 1987. Crisis bargaining, escalation, and mad. The American Political Science Review 81, 717–736. - Rubinstein, A., Wolinsky, A., 1985. Equilibrium in a market with sequential bargaining. Econometrica 53, 1133–1150. - Samuelson, P. A., 1958. Economics - An Introductory Analysis, 4th Edition. McGraw-Hill Book Company, Inc. New York, Toronto, London. - Schelling, T. C., 1956. An essay on bargaining. The American Economic Review 46, 281–306. - Skaperdas, S., 2006. Bargaining versus fighting. Defence and Peace Economics 17, 6567–676.