Handbook on the Economics of Conflict
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Handbook on the Economics of Conflict

Edited by Derek L. Braddon and Keith Hartley

The Handbook on the Economics of Conflict conveys how economics can contribute to the understanding of conflict in its various dimensions embracing world wars, regional conflicts, terrorism and the role of peacekeeping in conflict prevention.
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Chapter 3: A Bargaining Theory Perspective on War

Charles H. Anderton and John R. Carter


* Charles H. Anderton and John R. Carter 3.1 INTRODUCTION The costs of war include the diversion of resources to military goods, the destruction of people and property, and the disruption of economic activities such as trade and investment. Peace offers potential mutual gains to the combatants in the avoidance of these costs of war. Explaining why potential gains from peace would be forfeited, and war chosen instead, is the central problem addressed in this chapter. We approach the problem theoretically with a two-player bargaining model of war. Although the model abstracts away from many of the dynamic, multi-player, and multi-issue complexities of war, it nonetheless reveals a number of critical conditions under which even rational actors would miss the potential gains from peace. Among the sources of war illustrated in the model are incomplete information, pre-emptive military technology, indivisibility, preventive war, opportunity to eliminate a persistent rival, political bias and malevolence. We also offer brief historical illustrations and relate bargaining theory to empirical inquiries into the risk factors for war. 3.2 THE BARGAINING PERSPECTIVE ON CONFLICT The bargaining perspective traces back to Thomas Schelling (1960), who famously declared in The Strategy of Conflict: ‘To study the strategy of conflict is to take the view that most conflict situations are essentially bargaining situations’ (p. 5). In the study of war, outcomes are understood to be determined jointly by the choices of rivals. Depending on rivals’ responses, some choices yield advantage through violence, but others avoid the costs of war through accommodation....

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