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“If You Only Have a Hammer”: Optimal Dynamic Prevention Policy

Author

Listed:
  • Hannes Mueller
  • Christopher Rauh
  • Alessandro Ruggieri
  • Ben Seimon

Abstract

We study the gains of improving forecasting when a policymaker is facing a recurring risk and has the choice between a preventive early action and a de-escalating late action. We first introduce a simple two-stage Markov model to illustrate how prevention and de-escalation interact. We then study the role of forecasting for optimal armed conflict prevention in a 12-stage model which is calibrated using a large cross-country panel. Prevention benefits are substantial but critically depend on the systematic use of forecasting. The information rent of using a forecast is larger than 60% of GDP. In line with the theory we find that de-escalation policies reduce the incentives for prevention, whereas prevention increases incentives for de-escalation.

Suggested Citation

  • Hannes Mueller & Christopher Rauh & Alessandro Ruggieri & Ben Seimon, 2024. "“If You Only Have a Hammer”: Optimal Dynamic Prevention Policy," Working Papers 1465, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1465
    as

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    References listed on IDEAS

    as
    1. Daron Acemoglu & James A. Robinson, 2001. "A Theory of Political Transitions," American Economic Review, American Economic Association, vol. 91(4), pages 938-963, September.
    2. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    3. Paul Collier & V. L. Elliott & Håvard Hegre & Anke Hoeffler & Marta Reynal-Querol & Nicholas Sambanis, 2003. "Breaking the Conflict Trap : Civil War and Development Policy," World Bank Publications - Books, The World Bank Group, number 13938.
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    More about this item

    Keywords

    armed conflict; machine learning; prevention; dynamic optimization; information gain;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • F1 - International Economics - - Trade
    • L8 - Industrial Organization - - Industry Studies: Services

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