Working Paper: NBER ID: w16682
Authors: Daron Acemoglu; Mikhail Golosov; Aleh Tsyvinski; Pierre Yared
Abstract: 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.
Keywords: Resource Wars; Elasticity of Demand; Market Structure; Limited Commitment
JEL Codes: F00; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Resource Scarcity (Q21) | War Incentives (H56) |
| Inelastic Demand for Resources (Q31) | War Incentives (H56) |
| Resource Extraction by Firms (L72) | Probability of War (H56) |
| Regulation of Prices and Quantities (E64) | Prevention of War (F51) |
| Regulatory Measures (G18) | Increased Likelihood of War (H56) |
| Limited Commitment (D86) | Increased Likelihood of War (H56) |