The Calculus of Conflict




Smith, Adam C

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This dissertation addresses how we conceive of conflict from an opportunity cost perspective. Traditionally, economics posits the opportunity cost of choice as taking place in the context of tradeoffs between certain productive and consumptive uses of a person‘s resources, with this tradeoff taking place independently of the decisions of others. While this simple depiction of choice is suitable in markets where property rights are well-defined and outside coercion is minimal, it is ill-suited to contexts involving conflict. In conflictual environments, the opportunity cost of choice encompasses not only how the person allocates her resources to promote certain actions, but also how others will react to these actions. Thus, conflict by definition is nested within an interaction with others and therefore must be depicted as such when determining the opportunity cost considerations or calculus of conflict. The purpose of my first chapter is to explore the opportunity cost of conflict from this choice-theoretic perspective. This approach involves examining choice as it pertains to the person actually choosing whether to engage in conflict. My analysis is founded on a conception of conflict as being nested within an ongoing interaction with another person (or persons). This serves to expose a difficulty with modeling conflict from a strictly neoclassical perspective. Generally speaking, in the neoclassical style of argumentation, the decision-maker is described as choosing between two or more commodities/services where the relative prices are known. The opportunity cost of either item is the net gain associated with the foregone choice. Since the emphasis is placed upon resource scarcity as manifested through price differentials as the constraint of interest, negative consequences deriving from interaction with other person(s) merely lurk unstated in the background. As a result, the standard neoclassical approach, which has greatly influenced benefit-cost analysis and other decision models, obscures the disincentives these consequences place upon particular individuals considering acts of conflict. The contribution of this paper is to analytically distinguish the costs that pertain to (1) resource allocation and (2) the interaction with other persons. I draw out these costs by using an opportunity cost framework that builds upon the work of such theorists as Armen Alchian, James Buchanan, Jack Hirshleifer, and Murray Rothbard. My framework exposes the effects of these consequences upon behavior, which constitute crucial disincentives to engage in conflict, limiting its incidence even when no external enforcement is present. Furthermore, I present evidence from several contributions in the new comparative political economy literature that serve to expose how cooperation emerges as a result of the negative consequences of conflict with others. I next more rigorously define my model and test it using a laboratory experiment. I examine each of these constraints upon conflict, those that derive from resource scarcity and those that derive from the consequences of interaction with others. In this expansion upon previous theoretical and experimental efforts, I incorporate more fully both constraints into the participant‘s opportunity cost of choosing conflict by linking effort levels in the form of amount of arming and the level of destruction of a contestable resource. I employ an experiment to learn how alteration of these constraints changes outcomes in practice. I find that subjects follow the theoretical predictions in that severing the link between effort level and destruction leads to a 32.29% greater incidence of conflict. I also find a counter-intuitive effect produced by increasing the price of arming: an increase in the price of arms results in a 17.08% increase in the incidence of conflict. These results illustrate that the incidence of conflict is affected by both constraints in tandem as greater resource scarcity alone does not necessitate lower levels of conflict. As I demonstrate, how one models the nested interaction in which conflict takes place ultimately determines the opportunity cost of choosing conflict. Finally, I apply my framework to the changes in our current political landscape motivated by the recent financial crisis. This paper demonstrates that while policymakers ostensibly claim to be shifting market enterprises towards politically salient objectives, what occurs in practice is an interaction across competing networks of political and market enterprises. This embedded web of relationships inevitably influences actual political outcomes in a direction that no one organization can control or predict. One such outcome, the creation of the Troubled Assets Relief Program (TARP), illustrates the central thesis of my dissertation. While TARP reduced the costs in resources of gaining political advantages such as extensive subsidies and government support, the resulting backlash from this same mechanism caused market enterprises to reduce their involvement with political enterprises to minimum mandated levels. Furthermore, these companies chose to exit TARP oversight as soon as was legally feasible, an outcome which runs counter to a prediction that relies solely on the observation of decreased resource costs. After all, if the costs of rent-seeking decrease, a simpler model would predict greater rent-seeking. Incorporating the interactive costs of conflict reconciles the observed behavior of firms with economic theory. In summary, by exposing the interactive nature of conflict, this dissertation demonstrates that resource allocation across productive possibilities is only part of the calculus of conflict. Participants engaging in acts of conflict must reckon with the actions of others. The importance of this contribution is that it reveals that a decrease in the cost of resources used in conflict does not necessitate an increase in the incidence of conflict, as a naïve application of standard demand theory would predict. Instead, the more comprehensive opportunity cost framework I employ shows that it is only when we account for both the costs of these resources and the costs due to the interaction itself that we can apply the law of demand. The implication for research in conflict theory is that the objective resource costs of conflict must be analyzed alongside of the interactive costs of conflict when determining actual incidence of conflict. Incorporating these interactive costs yields a far more optimistic outlook of the ability of persons to cooperate, even under the direst of circumstances, such as takes place in environments characterized by conflict and violence.



Economics, Conflict, Constitutions, Anarchy, Political Economy, Experiments