War Signals: A Theory of Trade, Trust and Conflict

Dominic Rohner, Mathias Thoenig and Fabrizio Zilibotti

No 58, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: We construct a theory of persistent civil conflicts, where persistence is driven by the endogenous dynamics of inter-ethnic trust and trade. In times of peace, agents belonging to two groups are randomly matched to trade bilaterally. Trade hinges on trust and cooperation. The onset of conflict signals that the aggressor has a low propensity to cooperate, harming future trust and trade. Agents observe the history of conflicts and update their beliefs over time. The theory predicts that civil wars are persistent. Moreover, even accidental con.icts that do not reflect economic fundamentals erode trust, and can plunge a society into a vicious cycle of recurrent conflicts (a war trap). The incidence of conflict can be reduced by policies abating cultural barriers, fostering inter-ethnic trade and human capital, and shifting beliefs. Coercive peace policies such as peacekeeping forces or externally imposed regime changes have instead no persistent effects.

Keywords: beliefs; civil war; con‡ict; cultural transmission; ethnic fractionalization; human capital investments; learning; matching; peacekeeping; stochasic war; strategic complimentary trade (search for similar items in EconPapers)
JEL-codes: D74 D83 O15 Q34 (search for similar items in EconPapers)
Date: 2010-03-16
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: War Signals: A Theory of Trade, Trust, and Conflict (2013)
Working Paper: War Signals: A Theory of Trade, Trust and Conflict (2011)
Working Paper: War Signals: A Theory of Trade, Trust and Conflict (2011)
Working Paper: War Signals: A Theory of Trade, Trust and Conflict (2011)
Working Paper: War Signals: A Theory of Trade, Trust and Conflict (2011)
Working Paper: War signals: a theory of trade, trust and conflict (2011)
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