A Dynamic Theory of Resource Wars
We develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented. The interaction between the scarcity of resources and the incentives for war in the presence of limited commitment is at the center of our theory. We show that a key parameter determining the incentives for war is the elasticity of demand. Our first result identifies a novel externality that can precipitate war: price-taking firms fail to internalize the impact of their extraction on military action. In the case of inelastic resource demand, war incentives increase over time and war may become inevitable. Our second result shows that in some situations, regulation of prices and quantities by the resource-rich country can prevent war, and when this is the case, there will also be intertemporal distortions. In particular, resource extraction will tend to be slower than that prescribed by the Hotelling rule, which is the rate of extraction in the competitive environment. Our third result is that, due to limited commitment, such regulation can also precipitate war in some circumstances in which war is avoided in the competitive environment.
We would like to thank V.V. Chari, Larry Jones, Antonio Merlo, Gerard Padró i Miquel, Kristopher Ramsay, Stergios Skaperdas, and seminar participants at Berkeley, Canadian Institute of Advanced Research, Kellogg MEDS, New York University, and Princeton Yale Conference on War and Trade for comments. We thank Nick Werquin for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski & Pierre Yared, 2012. "A Dynamic Theory of Resource Wars," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 283-331. citation courtesy of