The dynamics of instability

César Barilla () and Duarte Gonçalves
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César Barilla: Columbia University, Department of Economics

Theoretical Economics, 2024, vol. 19, issue 1

Abstract: We study a model in which two players with opposing interests try to alter a status quo through instability-generating actions. We show that instability can be used to secure longer-term durable changes, even if it is costly to generate and does not generate short-term gains. In equilibrium, instability generated by a player decreases when the status quo favors them more. Equilibrium always exhibits a region of stable states in which the status quo persists. As players' threat power increases, this region shrinks, ultimately collapsing to a single stable state that is supported via a deterrence mechanism. There is long-run path-dependency and inequity: although instability eventually leads to a stable state, it typically selects the least favorable one for the initially disadvantaged player.

Keywords: Instability; social conflict; stochastic games (search for similar items in EconPapers)
JEL-codes: C72 C73 C78 D74 (search for similar items in EconPapers)
Date: 2024-01-26
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Related works:
Working Paper: The Dynamics of Instability (2023)
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