Conflict economics

Conflict economics is a branch of economics that puts the allocation of resources by means of violent fighting, i.e. conflict, into economic models.

In traditional economics, appropriation is a non-violent process that is guaranteed by perfect property rights and their costless enforcement. Conflict economics sheds a different light on appropriation. It is set in a model of contest between two players. Conflict economics introduces the idea that agents have to decide between production of resources and production of guns, i.e. tools that have the sole purposes of appropriating the resources produced by the other player. Different models are introduced to illustrate various situations that have similarities to real life conflicts.

Two parties contest a given resource Z. The player who wins the contest claims the entire resource, not leaving anything for the losing party. The probabilities of winning are determined by each party’s choice of guns.

In this model, agents face a trade-off between producing themselves and grabbing the output of the other agent. Each party is endowed with a secure resource R. The resource cannot be consumed directly but has to be allocated between producing guns (tools for conflict) or butter (consumption). Again, the probability of winning the contest and grabbing the other output depend on the relative numbers of guns produced. This model allows testing of different power structures between the players. One of the interesting outcomes is that if one agent has higher productivity, i.e. if he uses one unit of the resource he will gain more butter than his opponent would, he will receive a relatively lower expected pay-off. This is due to the fact that each player will then exploit his or her comparative advantage, with the more productive player producing more butter and the less productive player producing more guns, resulting in a higher chance of winning the conflict thus leading to a higher expected pay-off.

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