The Costs of Conflict

32 Pages Posted: 4 Sep 2011

See all articles by Adam Smith

Adam Smith

George Mason University - Department of Economics

Daniel Houser

George Mason University - Department of Economics; Interdisciplinary Center for Economic Science; George Mason University - Mercatus Center

Peter T. Leeson

George Mason University - Department of Economics; George Mason University - Mercatus Center

Ramin Ostadhossein

George Mason University - Department of Economics

Date Written: September 3, 2011

Abstract

Violent conflict destroy resources. It generates "destruction costs." These costs have an important effect on individual's decisions to cooperate or conflict. We develop two models of conflict: one in which conflict's destruction costs are independent of individuals' investment in "arms" - the tools of conflict - and another in which conflict's destruction costs depend on those investments. Our models demonstrate that when conflict's destruction costs are arms-dependent, conflict is more costly, making cooperation more likely. We test this prediction with a laboratory experiment in which subjects first choose how heavily to invest in arms and then choose whether to cooperate or conflict in an environment where interaction is repeated. In one set of treatments conflict's destruction costs are arms-independent. In another they are arms-dependent. Our experimental results support our model's predictions. Compared to when conflict's destruction costs are arms-independent, when those costs are arms-dependent, cooperation increases by nearly a third.

Keywords: conflict, anarchy, experimental economics, political economy

JEL Classification: C92, D74

Suggested Citation

Smith, Adam and Houser, Daniel and Leeson, Peter T. and Ostadhossein, Ramin, The Costs of Conflict (September 3, 2011). GMU Working Paper in Economics No. 11-33. Available at SSRN: https://ssrn.com/abstract=1921927 or http://dx.doi.org/10.2139/ssrn.1921927

Adam Smith (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Daniel Houser

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Interdisciplinary Center for Economic Science ( email )

5th Floor, Vernon Smith Hall
George Mason University
Arlington, VA 22201
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7039934856 (Phone)

HOME PAGE: http://mason.gmu.edu/~dhouser/

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
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Peter T. Leeson

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://www.peterleeson.com

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://ppe.mercatus.org/scholars/peter-leeson

Ramin Ostadhossein

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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