Workers, Warriors, and Criminals: Social Conflict in General Equilibrium

Abstract

We incorporate appropriation activities (social conflict) into canonical models of trade and study how economic shocks and policies affect the intensity of conflict. We show that not all shocks that could make society richer reduce conflict: positive shocks to labor‐intensive industries diminish conflict, while positive shocks to capital‐intensive industries increase it. The key requirement is that conflict activities be more labor intensive than the economy as this determines how shocks affect the returns and costs of conflict. Our theory is consistent with several observed patterns of conflict and implies that empirical work should take into account the relative factor intensities of the productive and conflict sectors in each country. Incorporating appropriation into a canonic general equilibrium model affects what policies may be deemed desirable: in order to reduce conflict and generate Pareto‐improvements policy must be distortionary, while reforms that appear efficiency‐enhancing under the unrealistic assumption of perfect property rights may backfire. This offers one explanation for why reforms based on traditional models without appropriation may be delayed and become unpopular when implemented, and why societies may sympathize with seemingly inefficient redistribution.

What Have We Learned about the Resource Curse?

“…A third study used municipal-level data from Colombia to estimate the effects of both coffee and petroleum price shocks on the severity of rebel and paramilitary violence; it found that coffee price shocks tend to reduce violence in the coffee-producing regions (perhaps by drawing labor out of the conflict and into the coffee sector), whereas oil price shocks tend to boost violence in oil-rich regions (possibly by creating more lucrative opportunities for predation) (Dube & Vargas 2013). These latter findings closely match the implications of a model by Dal Bó & Dal Bó (2011) in which exogenous shocks can raise or lower conflict risks, depending on whether they occur in labor-intensive or capital-intensive sectors.…”

Trade and insecure resources

“…Others have attributed the problem to domestic rent-seeking (e.g., Torvik, 2002;Mehlum et al, 2006), redistributive politics (e.g., Robinson et al, 2005), and domestic conflict (e.g., Garfinkel et al, 2008;Dal Bo and Dal Bo, 2011). But, our finding suggests that the absence or ineffectiveness of international institutions aimed at managing international conflict has a bearing on this problem as well.…”

External Shocks, Internal Shots: The Geography of Civil Conflicts

“…A way to distinguish between these two effects has been proposed by Dal Bó and Dal Bó (2011). In their two-sector model, income shocks have an opposite effect depending on whether they affect the capital-or the labor-intensive sectors.…”