The Handbook on the Political Economy of War
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The Handbook on the Political Economy of War

Edited by Christopher J. Coyne and Rachel L. Mathers

By defining political economy and war in the broadest sense, this unique Handbook brings together a wide range of interdisciplinary scholars from economics, political science, sociology, and policy studies to address a multitude of important topics. These include an analysis of why wars begin, how wars are waged, what happens after war has ceased, and the various alternatives to war. Other sections explore civil war and revolution, the arms trade, economic and political systems, and post-conflict reconstruction and nation building. Policymakers as well as academics and students of political science, economics, public policy and sociology will find this volume to be an engaging and enlightening read.
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Chapter 24: Conflict, Credibility and Asset Prices

Gregory M. Dempster and Justin P. Isaacs


Gregory M. Dempster and Justin P. Isaacs “As I dare say you are aware, negotiations to end the war have been going on for some time: that is why my principal and I have been to Paris. They have succeeded. Peace will be signed in the next few days.” “Good Lord above!” cried Jack. “Yes, indeed,” said Palmer. “And of course there are an infinity of reflections to be made. But what is to my immediate purpose is that as soon as the news is made public, Government stock and a large variety of commercial shares will rise enormously, some of them cent per cent.” “Good Lord above,” said Jack again. “A man who bought now,” said Palmer, “would make a great deal of money before next settling day; he might borrow or pledge his credit or make time bargains with great confidence.”1 24.1 INTRODUCTION No matter what the specific nature of the contract, a problem inherent in all types of conflict resolution is the uncertainty of whether the participants are legitimately committed to delivering on their part of the agreement. The absence of an effective enforcement mechanism often means that parties to peace agreements will have an incentive to defect from the contract in future periods. Furthermore, each party involved in the negotiation process will recognize that other parties have an incentive to change their behavior in future periods, and will thus be wary of making binding agreements in the interest of ending the conflict. Absent a solution...

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