«Conﬂict economics contributes to an understanding of violent conﬂict in two important ways. First, it applies economic analysis to diverse ...»
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PRINCIPLES OF CONFLICT ECONOMICS
Conﬂict economics contributes to an understanding of violent conﬂict in two
important ways. First, it applies economic analysis to diverse conﬂict activities
such as war, arms races, and terrorism, showing how they can be understood as
purposeful choices responsive to underlying incentives. Second, it treats
appropriation as a fundamental economic activity, joining production and exchange as a means of wealth acquisition. Drawing on a half-century of scholarship, this book presents a primer on the key themes and principles of conﬂict economics. Although much work in the ﬁeld is abstract, the book is made accessible to a broad audience of scholars, students, and policy makers by relying on historical data, relatively simple graphs, and intuitive narratives. In exploring the interdependence of economics and conﬂict, the book presents in novel ways current perspectives on conﬂict economics and offers new insights into the economic aspects of violence.
Charles H. Anderton is Professor of Economics at the College of the Holy Cross, Worcester, Massachusetts, where he has taught since 1986. He coedited the volume Economics of Arms Reduction and the Peace Process with Walter Isard in 1992. A former North American editor of the journal Defence and Peace Economics, Professor Anderton’s research has appeared in journals such as Economic Inquiry, Journal of Economic Behavior and Organization, Journal of Conﬂict Resolution, Conﬂict Management and Peace Science, and Peace Economics, Peace Science, and Public Policy, as well as in the Handbook of Defense Economics, volumes 1 and 2.
John R. Carter is Professor of Economics at the College of the Holy Cross, Worcester, Massachusetts, where he has served on the faculty since 1976. A former Chair of the Department of Economics, Professor Carter received the Holy Cross Distinguished Teaching Award in 1992. His research has appeared in journals such as the Review of Economics and Statistics, Journal of Law and Economics, Journal of Economic Perspectives, Journal of Economic Behavior and Organization, Defence and Peace Economics, Journal of Peace Research, and Public Choice, as well as in the Handbook of Defense Economics, volume 2.
Principles of Conﬂict Economics A Primer for Social Scientists
CHARLES H. ANDERTONCollege of the Holy Cross
JOHN R. CARTERCollege of the Holy Cross
CAMBRIDGE UNIVERSITY PRESSCambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521875578 © Charles H. Anderton and John R. Carter 2009 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press.
First published in print format 2009 ISBN-13 978-0-511-50717-5 eBook (EBL) ISBN-13 978-0-521-87557-8 hardback ISBN-13 978-0-521-69865-8 paperback Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.
To Our Families Contents
Now the earth was corrupt in God’s sight and was full of violence.
Genesis 6:11 Throughout recorded history, violent conﬂict has been a conspicuous aspect of the human experience. In recent decades, terrorism, civil strife, nationstate warfare, and the proliferation of weapons of mass destruction have dominated the headlines. It might at ﬁrst appear that economics has little to say about such realms of conﬂict. After all, most economics textbooks restrict their attention to the behavior of consumers, producers, and governments operating peacefully in secure environments. Fortunately, however, the rapidly developing ﬁeld of conﬂict economics can contribute greatly to an understanding of conﬂict in two important ways. First, conﬂict economics rigorously applies the concepts, principles, and methods of economics to the study of diverse conﬂict activities. Second, conﬂict economics treats appropriation as a fundamental economic activity, revealing how conﬂict both shapes and is shaped by the traditional economic activities of production and trade.
This book provides the reader with an accessible overview of the basic principles and major themes of conﬂict economics. Following an introduction to the ﬁeld in Chapter 1, Chapters 2 through 4 survey many of the economic concepts and methods applied in subsequent chapters. These chapters will be useful to readers who either have no formal training in economics or would like to review economic principles with a focus on conﬂict. Chapters 5 through 11 explore major topics in conﬂict economics, including the bargaining theory of war; conﬂict between states; civil war and genocide; terrorism; the geography and technology of conﬂict; arms rivalry, proliferation, and arms control; and alliance behavior. These chapters provide a balanced mix of theoretical and empirical content. Chapter 12 is more
theoretical and treats appropriation as a fundamental economic activity, joining production and trade as a means of wealth acquisition. Bibliographic notes are provided at the ends of chapters to help readers who want to pursue topics in greater depth. Two appendixes are also available – a primer on statistical analysis and a bargaining model of conﬂict.
Given our training and background, we concentrate on economic aspects of conﬂict. Although we recognize and incorporate contributions from various disciplines, especially political science, we defer to specialists in other ﬁelds to convey those contributions more thoroughly. Our emphasis on economic aspects of conﬂict can be valuable to both economists and non-economists. For economists, the book shows numerous ways in which economic methods can be applied to conﬂict issues. Moreover, the book’s treatment of conﬂict as a fundamental category of economic activity will help economists reduce the gap that now exists between textbook models of peaceful production and exchange and real economies subject to potential or actual violence. The book should also appeal to those with backgrounds in ﬁelds other than economics. Noneconomists are naturally drawn to incorporate economic variables in their studies of conﬂict, and our book offers coverage of such variables from the perspective of the economist. Also, many models and methods central to conﬂict economics (e.g., rational choice theory, game theory, and econometrics) are of growing importance in disciplines other than economics.
Much of the academic work in conﬂict economics is theoretical and abstract, but we take steps to increase the accessibility of the text. In addition to the overview of economic fundamentals in Chapters 2 through 4, the book contains extensive coverage of conﬂict data, intuitive narratives, relatively simple algebra and graphs, and summaries of empirical evidence on conﬂict phenomena. Furthermore, the book is organized so that the more accessible chapters occur early and the more difﬁcult chapters later. The book should be useful to scholars, policy makers, and practitioners from a variety of disciplines and backgrounds, including economics, political science, international relations, peace studies, military sciences, and public policy. It should likewise be suitable in undergraduate or beginning-level graduate courses on the economics of conﬂict and in courses on war and peace at universities and military service schools.
The social science literature on conﬂict is massive. Hence, we are selective in the topics covered, theories emphasized, empirical articles reviewed, and bibliographic notes provided. The particular empirical articles that we choose to review are selected because they are relatively recent and highlight the importance of economic variables in conﬂict analysis. Thus, we do not necessarily choose seminal empirical studies for review, nor do our
Preface xxisummaries of results necessarily reﬂect ongoing empirical controversies within topic areas. Finally, although the book covers issues pertinent to many contemporary conﬂicts such as those in Iraq, Afghanistan, and Sudan-Darfur, we do not attempt to focus the book on current events and policy debates.
Instead, our goal is to emphasize principles of conﬂict economics that will be as useful in exploring conﬂicts yet to emerge as they are in studying historical and contemporary events.
Over the years, many scholars have shaped our thinking about conﬂict economics and encouraged our attempts to contribute to the ﬁeld. We regret that we can mention only a few, but they include Jurgen Brauer, Keith Hartley, Jack Hirshleifer, Michael Intriligator, Walter Isard, and Todd Sandler. We also wish to acknowledge our former students, especially those in Experimental Microeconomics and Economics of Peace, Conﬂict, and Defense, both upper-level courses taught in the Department of Economics at the College of the Holy Cross. Their questions and comments have contributed greatly to our understanding of pedagogy in general and conﬂict economics in particular.
We are indebted to Scott Parris at Cambridge University Press for encouragement and advice over the course of the project; to the production staff at Cambridge University Press for their excellent work; to Daniel Arce, Jurgen Brauer, and several anonymous reviewers for extensive and insightful comments on various drafts; to Roxane Anderton for help with citations; to Erin Wall (College of the Holy Cross, 2006) for research assistance funded by the May and Stanley Smith Charitable Trust Summer Research Assistant Program; to the College of the Holy Cross for timely research leaves; and to Nancy Baldiga, Miles Cahill, Robert Frank, George Kosicki, and Todd Sandler for generous letters of support. We are especially grateful to our wives, Roxane Anderton and Gloria Carter, for their love and understanding, without which this book would not have been possible.
Introduction: Deﬁnition and Scope of Conﬂict Economics
For many people, in many places, violent or potentially violent conﬂict is part of the human experience. Headline stories of civil strife, insurgency, nation-state warfare, terrorism, and the proliferation of weapons of mass destruction document the prevalence of conﬂict as a basic fact of life. Less dramatic indications of conﬂict include deadbolt locks, gated residential communities, electronic security systems, and handgun sales, to name a few. At ﬁrst blush, it might appear that economics has little if anything to say about life’s harder side. Economics textbooks typically restrict their attention to the peaceful behavior of consumers, producers, and governments in the marketplace. Thus, it might seem that potential and actual violence over resources, goods, and political power lie outside the domain of economics. But this is a misperception, as is demonstrated by the rapidly developing ﬁeld of conﬂict economics.
1.1. What Is Conﬂict Economics?
Conﬂict economics has two deﬁning characteristics. First, it maintains that the concepts, principles, and methods of economics can be fruitfully applied to the study of conﬂict activities. Thus, diverse phenomena like war, arms races, alliances, and terrorism are analyzed and understood as outcomes of purposeful choices responsive to changes in underlying incentives. As just one example, economics explains how consumers shift purchases from one good (say orange juice) toward another (say grape juice) when the price of one rises relative to that of the other. Similar economic forces are at work in many conﬂict settings: when one type of weapon is constrained by arms control, another type is substituted; when political targets are hardened, terrorists turn to less costly civilian targets;