Predicting Winners in Civil Wars

Stephen H Haber, Marc Weidenmier, Kim Oosterlinck and Kris Mitchener

No 10109, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a method to estimate which side will win a civil war. The key insight we deliver is that, for typical sovereign debt contracts, the probability of debt repayment will equal the probability of victory in a civil war. We test our predictor for standard outcomes in civil wars, including when the incumbent government loses (the Chinese Nationalists), when a new government is installed by a foreign power and decides to repudiate debt (the restoration of Ferdinand VII of Spain), and when there is a secession (the U.S. Confederacy). For China, markets were predicting a Communist victory three years before it happened. For the U.S., markets never gave the South much more than a 40 percent chance of maintaining the Confederacy. For Spain, markets considered the restoration of Ferdinand VII as likely (probabilities above 50%) as soon as France declared its intention to send military forces to the area.

Keywords: Civil wars; Predictions markets; Conflict; Asset prices (search for similar items in EconPapers)
JEL-codes: F3 G1 N2 O1 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-his
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Citations: View citations in EconPapers (1)

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