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«Conflict economics contributes to an understanding of violent conflict in two important ways. First, it applies economic analysis to diverse ...»

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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


College of the Holy Cross


College of the Holy Cross


Cambridge, 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

xixxx Preface

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 xxi

summaries 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;

2 Introduction

and when entrepreneurs of local violence lose access to land mines, they employ young males armed with assault rifles.

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