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War Or Settlement: An Economic Analysis Of Conflcit With Endogenous And Increasing Destruction

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  • Yang-Ming Chang
  • Zijun Luo

Abstract

This paper presents an economic analysis of the optimal choice between war and settlement when armed conflicts involve weapon costs and endogenously increasing destruction to consumable resources. In contrast to some earlier findings in the conflict literature, we derive conditions under which war dominates settlement as the Nash equilibrium choice in a one-period game without incomplete information or misconceptions. These conditions are shown to depend not only on resources allocated to the production of military weapons, but also on the endogenous destructiveness of weapons used in warfare. We show that contending parties always allocate more resources to arms productions under settlement (in the shadow of conflict) than under war. When total destruction is less than the difference in arms productions between settlement and war, each party’s expected payoff is relatively higher under war. As a result, war dominates settlement. But, when total destruction is greater than the difference in arms productions between settlement and war, each party’s expected payoff is relatively higher under settlement. In this case, settlement dominates war and the larger scale of destructiveness associated with higher arms levels generates an effective deterrence for ‘armed peace’. One implication of the positive analysis is that, under the threat of conflict, arms reductions for promoting peace can never be voluntary.

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  • Yang-Ming Chang & Zijun Luo, 2013. "War Or Settlement: An Economic Analysis Of Conflcit With Endogenous And Increasing Destruction," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(1), pages 23-46, February.
  • Handle: RePEc:taf:defpea:v:24:y:2013:i:1:p:23-46
    DOI: 10.1080/10242694.2012.659862
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    References listed on IDEAS

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    1. Thomas C. Schelling, 2006. "An Astonishing Sixty Years: The Legacy of Hiroshima," American Economic Review, American Economic Association, vol. 96(4), pages 929-937, September.
    2. Robert J. Aumann, 2007. "War and Peace," Chapters, in: Jean-Philippe Touffut (ed.), Augustin Cournot: Modelling Economics, chapter 5, Edward Elgar Publishing.
    3. Herschel Grossman, 2004. "Peace and War in Territorial Disputes," Working Papers 2004-07, Brown University, Department of Economics.
    4. Reuven Glick & Alan M. Taylor, 2010. "Collateral Damage: Trade Disruption and the Economic Impact of War," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 102-127, February.
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    Cited by:

    1. Chang, Yang-Ming & Sanders, Shane & Walia, Bhavneet, 2015. "The costs of conflict: A choice-theoretic, equilibrium analysis," Economics Letters, Elsevier, vol. 131(C), pages 62-65.
    2. Shane Sanders & Bhavneet Walia, 2014. "Endogenous Destruction in a Model of Armed Conflict: Implications for Conflict Intensity, Welfare, and Third-Party Intervention," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(4), pages 606-619, August.
    3. Syropoulos, Constantinos & Zylkin, Thomas, 2015. "The Problem of Peace: A Story of Corruption, Destruction, and Rebellion," School of Economics Working Paper Series 2015-5, LeBow College of Business, Drexel University.
    4. Smith, Adam C. & Houser, Daniel & Leeson, Peter T. & Ostad, Ramin, 2014. "The costs of conflict," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 61-71.
    5. Yang‐Ming Chang & Shih‐Jye Wu, 2020. "Insecure Resources, Bilateral Trade, and Endogenous Predation: A Game‐Theoretic Analysis of Conflict and Trade," Southern Economic Journal, John Wiley & Sons, vol. 86(4), pages 1338-1371, April.
    6. Yang-Ming Chang & Zijun Luo, 2017. "Endogenous Destruction In Conflict: Theory And Extensions," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 479-500, January.
    7. Luo, Zijun & Xie, Xin, 2018. "A Model Of rivalries with endogenous prize and strength," Journal of Economic Behavior & Organization, Elsevier, vol. 152(C), pages 215-223.
    8. Antoine Pietri, 2017. "Les modèles de « rivalité coercitive » dans l’analyse économique des conflits," Revue d'économie politique, Dalloz, vol. 127(3), pages 307-352.
    9. Damian S. Damianov & Shane Sanders & Anil Yildizparlak, 2018. "Asymmetric endogenous prize contests," Theory and Decision, Springer, vol. 85(3), pages 435-453, October.

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