Insecure Property Rights and Conflicts: How to Solve Them?

Abstract

According to the leading literature, the valid enforcement of property rights is a key ingredient for economic development. However, their enforcement can be problematic in international relations, which can be a valid approximation of an anarchic or state of nature environment. In such a context, we do not have a third party that may sanction any illegal behaviour, since the existing international organizations may lack the necessary power to force countries to behave in a specific way. A large variety of papers have attempted to provide a self-enforcing solution to a conflict among players by defining a bargaining range, which may prevent the emergence of a war. Hence, players renounce the fight and leave peacefully, enforcing de facto property rights. In contrast, we propose a model in which contestants decide to solve their dispute by forming a union. The latter can be interpreted in a broad sense, also encompassing the possibility that they form a new political entity. We highlight the welfare implications of that solution and define the non-empty set of parameters, which support such a decision in the long run. Intuitively, from a dual perspective, the model also discloses the circumstances that may lead players to deviate from the union path and split. Therefore, our paper contributes to the literature about the formation and breakdown of countries, although our primary concern is to present a model with an innovative solution to conflicts. Moreover, our work stresses the importance of the enforcement of property rights to guarantee the peaceful development of relations among countries.