Explaining Conflict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future

29 Pages Posted: 18 Jan 2006  

Michael T. McBride

University of California - Irvine - Department of Economics

Stergios Skaperdas

University of California - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 2005

Abstract

We examine two factors that help explain the prevalence of conflict in low-income countries: that adversaries cannot enforce long-term contracts in arms, and that open conflict alters the future strategic positions of the adversaries differently than does peace. Using an infinite horizon model, we show the conditions under which adversaries will not be able to sustain short-term contracts even though doing so is Pareto superior to open conflict. Conflict arises because adversaries attempt to gain future strategic supremacy that only victory in conflict brings. Lower incomes or wages, as well as higher discount factors and the less destructive the conflict is, the higher is the likelihood of war.

JEL Classification: C70, D74, O10

Suggested Citation

McBride, Michael T. and Skaperdas, Stergios, Explaining Conflict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future (December 2005). CESifo Working Paper Series No. 1636. Available at SSRN: https://ssrn.com/abstract=876555

Michael T. McBride

University of California - Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

Stergios Skaperdas (Contact Author)

University of California - Department of Economics ( email )

3123 Social Science Plaza A
Irvine, CA 92697-5100
United States
714-824-4167 (Phone)
714-824-2182 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
111
rank
226,673
Abstract Views
719
PlumX