Endogenous Destruction in Conflict: Theory and Extensions

22 Pages Posted: 21 Nov 2016

See all articles by Yang-Ming Chang

Yang-Ming Chang

Kansas State University - Department of Economics

Zijun Luo

Sam Houston State University - College of Business Administration - Department of Economics and International Business

Date Written: January 2017

Abstract

This article develops a general equilibrium model of conflict to characterize the implications of endogenous destruction for bargaining and fighting. Specifically, we consider the scenario where two contending parties engage in bargaining to avoid fighting when there are direct costs (e.g., arms buildups) and indirect costs (e.g., destruction to consumable resources) of conflict. Without imposing specific functional form restrictions on conflict, production, and destruction technologies, we show their interactions in determining an optimal decision between fighting and bargaining. We find that, under the shadow of conflict, bargaining is costly as the contending parties always allocate more resources to arming for guarding settlement through bargaining than in the event of fighting. In contrast to conventional thinking that bargaining is Pareto superior over fighting, we show conditions under which fighting dominates bargaining as the Nash equilibrium choice. The positive analysis may help explain the general causes of fighting, without resorting to the assumption of incomplete information or misperceptions.

JEL Classification: D74, H56, C7

Suggested Citation

Chang, Yang-Ming and Luo, Zijun, Endogenous Destruction in Conflict: Theory and Extensions (January 2017). Economic Inquiry, Vol. 55, Issue 1, pp. 479-500, 2017, Available at SSRN: https://ssrn.com/abstract=2872405 or http://dx.doi.org/10.1111/ecin.12354

Yang-Ming Chang (Contact Author)

Kansas State University - Department of Economics ( email )

Manhattan, KS 66502-4001
United States
785-532-4573 (Phone)

HOME PAGE: http://www.k-state.edu/economics/facsheets/chang.htm

Zijun Luo

Sam Houston State University - College of Business Administration - Department of Economics and International Business ( email )

SHSU Box 2118
Huntsville, TX 77341-2118
United States

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