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Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-51517

Rohner, Dominic; Thoenig, Mathias; Zilibotti, Fabrizio (2011). War Signals: A Theory of Trade, Trust and Conflict. Working paper series / Department of Economics No. 13, University of Zurich.

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Abstract

We construct a dynamic theory of civil conflict hinging on inter-ethnic trust and trade. The model economy is inhabitated by two ethnic groups. Inter-ethnic trade requires imperfectly observed bilateral investments and one group has to form beliefs on the average propensity to trade of the other group. Since conflict disrupts trade, the onset of a conflict signals that the aggressor has a low propensity to trade. Agents observe the history of conflicts and update their beliefs over time, transmitting them to the next generation. The theory bears a set of testable predictions. First, war is a stochastic process whose frequency depends on the state of endogenous beliefs. Second, the probability of future conflicts increases after each conflict episode. Third, "accidental" conflicts that do not reflect economic fundamentals can lead to a permanent breakdown of trust, plunging a society into a vicious cycle of recurrent conflicts (a war trap). The incidence of conflict can be reduced by policies abating cultural barriers, fostering inter-ethnic trade and human capital, and shifting beliefs. Coercive peace policies such as peacekeeping forces or externally imposed regime changes have instead no persistent effects.

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
DDC:330 Economics
JEL Classification:D74, D83, O15, Q34
Uncontrolled Keywords:beliefs, civil war, conflict, cultural transmission, ethnic fractionalization, human capital investments, learning, matching, peacekeeping, stochastic war, strategic complementarity, trade.
Language:English
Date:March 2011
Deposited On:25 Nov 2011 11:13
Last Modified:20 Oct 2012 20:24
Series Name:Working paper series / Department of Economics
Number of Pages:49
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/wp.html

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