On the basis of a single-period, guns-versus-butter, complete-information model in which two agents dispute control over an insecure portion of their combined output, we study the choice between a ...peace agreement that maintains the status quo without arming (or unarmed peace) and open conflict (or war) that is possibly destructive. With a focus on outcomes that are immune to both unilateral deviations and coalitional deviations, we find that, depending on war's destructive effects, the degree of output security and the initial distribution of resources, peace can, but need not necessarily, emerge in equilibrium. We also find that, ex ante resource transfers without commitments can improve the prospects for peace, but only when the configuration of parameters describing the degree of output security and the degree of war's destruction ensures the possibility of peace without such transfers at least for some sufficiently even initial resource distributions.
Inspired by the increased interest in economic sanctions and their consequences, this special issue contains a collection of studies by experts aiming to reflect the recent developments and trends in ...the literature on economic sanctions. The contributions contain theoretical research on the topic, data collection, and empirical work on the impact, effectiveness and success of sanctions. Moreover, the contributions come from economists and political scientists and are, therefore, interdisciplinary in nature. In this introduction, we highlight each paper in the volume by summarizing its salient features and by placing them in the broader context of the literature on economic sanctions. We also synthesize several takeaways and conclude by identifying questions we believe future research should shed further light on.
We consider a simple, guns-versus-butter model in which agents choose between “war” and “peace” to study the implications of inequality in resource ownership for equilibrium outcomes. Provided war is ...destructive, peace can emerge as the stable equilibrium, but only if the distribution of resource ownership is sufficiently even. We establish that, when this condition fails, the richer agent can destroy a portion of its resource endowment to even out the ex post distribution and thereby support peace. We also examine the importance of ex ante resource transfers and show that they are Pareto superior to burning resources.
•We study a single-period guns-vs-butter model of conflict between two agents.•The agents can choose either war or peace identified with the status quo.•Peace is more likely to emerge when resources are more evenly distributed.•Resource burning can promote peace, but is dominated by resource transfers.
Trade and insecure resources Garfinkel, Michelle R.; Skaperdas, Stergios; Syropoulos, Constantinos
Journal of international economics,
January 2015, 2015-01-00, 20150101, Volume:
95, Issue:
1
Journal Article
Peer reviewed
Open access
We construct a model of conflict and trade to study the consequences of interstate disputes over contested resources (land, oil, water or other resources) for arming, welfare and trade flows. ...Different trade regimes imply different costs of such disputes in terms of arming. Depending on world prices, free trade can intensify arming to such an extent that the additional security costs it brings swamp the traditional gains from trade and thus render autarky more desirable for one or all rival states. Free trade, though, is always an equilibrium, and sometimes is a dominant one with features of a prisoner's dilemma outcome. Furthermore, contestation of resources can reverse a country's apparent comparative advantage relative to its comparative advantage in the absence of conflict. And, where such conflict is present, comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns.
•We study the effects of resource insecurity in a neoclassical trade model.•For certain world prices, a shift from autarky to free trade is welfare reducing.•Even so, free trade can be the unique dominant-strategy equilibrium.•Resource insecurity can reverse a country's comparative advantage.•Differences between world and autarkic prices can be poor predictors of trade patterns.
This paper analyzes a guns-versus-butter model in which two agents compete for control over an insecure portion of their combined output. They can resolve this dispute either peacefully through ...settlement or by military force through open conflict (war). Both types of conflict resolution depend on the agents’arming choices, but only war is destructive. We find that, insofar as entering into binding contracts on arms is not possible and agents must arm even under settlement to secure a bigger share of the contested output, the absence of long-term commitments need not be essential in understanding the outbreak of destructive war. Instead, the ability to make short-term commitments could induce war. More generally, our analysis highlights how the pattern of war’s destructive effects, the degree of output insecurity and the initial distribution of resources matter for arming decisions and the choice between peace and war. We also explore the implications of transfers for peace.
It is generally thought that in long-term relationships high valuations of the future are conducive to cooperation. In an intertemporal model of conflict, however, we demonstrate the possibility of ...the opposite effect: a longer shadow of the future may harm cooperation. In particular, we show that the degree of inefficiency is positively related to: (i) the agents' valuation of the future, (ii) potential growth rates in resources, (iii) the size of initial resource endowments, and (iv) the effectiveness of conflict.
We explore theoretically and empirically the relationship between intraindustry trade and the skill premium. Our model features a Chamberlinian-type mechanism of income distribution based on ...quasi-homothetic consumer preferences, non-homothetic production, and factor-biased scale economies at the firm level. The analysis focuses on a two-country, one-sector model of intraindustry trade with two factor inputs consisting of high-skilled and low-skilled labor. We find that a move from autarky to free trade (a) raises the output of the representative firm and its level of total factor productivity, and (b) reduces (raises) the relative wage of high-skilled workers under the hypothesis of output-skill substitutability (output-skill complementarity). Plant-level evidence from Mexico supports the empirical relevance of the proposed income-distribution mechanism.
In this paper, we study alternative forms of conflict resolution, both peaceful
and non-peaceful, between two countries that compete for claims to a resource
used to produce potentially traded goods. ...Consistent with the classical liberal
argument, peace supports mutually beneficial trade, whereas war preempts it. War
always induces countries to allocate resources into non-contractible arming
(“guns”) for superiority in conflict. Under peaceful settlement,
countries might choose to arm as well for gaining leverage in negotiations, but
arming is typically less than what it is under war. Building on the observation
that arming itself affects the countries’ bargaining sets, we compare the
efficiency properties of division rules generated by three prominent bargaining
solutions – namely, splitting the surplus, equal sacrifice, and Nash
bargaining – and show how they depend on the gains from trade.
Trade costs and multimarket collusion Bond, Eric W.; Syropoulos, Constantinos
The Rand journal of economics,
12/2008, Volume:
39, Issue:
4
Journal Article
Peer reviewed
Contrary to conventional wisdom, this article argues that trade liberalization may facilitate collusion and reduce welfare. With the help of a duopoly model in which firms interact repeatedly in ...multiple markets, we first show that, if trade costs (i.e., tariffs/transport costs) and discount factors are not too high, efficient cartel agreements necessitate the cross-hauling of goods, as that entails lower deviation incentives. In this setting, we then demonstrate that reciprocal trade liberalization always raises total output when trade costs are within a range whose lower bound exceeds a threshold level, but may reduce total output (and thus be pro-collusive) when trade costs are below that threshold level.
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