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

Michael McBride () and Stergios Skaperdas

No 50606, Working Papers from University of California-Irvine, Department of Economics

Abstract: 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.

JEL-codes: C70 D74 O10 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2005-10
New Economics Papers: this item is included in nep-afr
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Citations: View citations in EconPapers (4)

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Working Paper: Explaining Conflict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:050606

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