Uncertainty and Conflict Decision

Natasa Bilkic () and Thomas Gries
Additional contact information
Natasa Bilkic: University of Paderborn

No 78, Working Papers CIE from Paderborn University, CIE Center for International Economics

Abstract: Though violent conflicts bear dramatic uncertainties, there is no closed theory addressing large uncertainties in conflict decisions. If a violent conflict is an investment in social, political, or economic change for rebels, how do large uncertainties like threatening waves of persecution affect their decision to turn violent? In order to capture such discontinuous uncertain large stochastic shocks we apply a real option model and introduce a more general stochastic process than the often used geometric Brownian motion, namely an Ito-Lévy Jump Diffusion processes. A major result is that large uncertain shocks have opposite effects on the decision to launch a conflict than small variations, indicated by normal volatility. While an increase in volatility of e.g. general economic conditions, indicated by (marginal) volatility, would give hope and postpone a potential attack, more uncertain large threats, indicated by discontinuous negative shock, will lead to an earlier outbreak of conflict. Hence, in latent conflicts, either general disaster shocks, or even deliberately announced oppressive threats by a government, often meant to awe the oppressed group, may provoke a violent outbreak, if the threat is strong enough.

Keywords: theory of social conflict; decision under uncertainty; non-marginal stochastic shocks (search for similar items in EconPapers)
JEL-codes: C61 D74 D81 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-02
New Economics Papers: this item is included in nep-cdm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://groups.uni-paderborn.de/wp-wiwi/RePEc/pdf/ciepap/WP78.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pdn:ciepap:78

Access Statistics for this paper

More papers in Working Papers CIE from Paderborn University, CIE Center for International Economics Contact information at EDIRC.
Bibliographic data for series maintained by WP-WiWi-Info ( this e-mail address is bad, please contact ) and ( this e-mail address is bad, please contact ).