War and natural resource exploitation

Frederick (Rick) van der Ploeg and Dominic Rohner

European Economic Review, 2012, vol. 56, issue 8, 1714-1729

Abstract: We build a theoretical framework that allows for endogenous conflict behaviour (i.e., fighting efforts) and for endogenous natural resource exploitation (i.e., speed, ownership, and investments). While depletion is spread in a balanced Hotelling fashion during peace, the presence of conflict creates incentives for rapacious extraction, as this lowers the stakes of future contest. This voracious extraction depresses total oil revenue, especially if world oil demand is relatively elastic and the government’s weapon advantage is weak. Some of these political distortions can be overcome by bribing rebels or by government investment in weapons. The shadow of conflict can also make less efficient nationalized oil extraction more attractive than private extraction, as insecure property rights create a holdup problem for the private firm and lead to a lower license fee. Furthermore, the government fights less intensely than the rebels under private exploitation, which leads to more government turnover. Without credible commitment to future fighting efforts, private oil depletion is only lucrative if the government’s non-oil office rents are large and weaponry powerful, which guarantees the government a stronger grip on office and makes the holdup problem less severe.

Keywords: Conflict; Natural resources; Voracious extraction; Private resource exploitation; Exploration investment; License fee; Rebels (search for similar items in EconPapers)
JEL-codes: D45 D74 L71 Q34 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Related works:
Working Paper: War and Natural Resource Exploitation (2010)
Working Paper: War and Natural Resource Exploitation (2010)
Working Paper: War and natural resource exploitation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:8:p:1714-1729

DOI: 10.1016/j.euroecorev.2012.09.003

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