Politics through the Lens of Economics

Lecture 14: War

Masayuki Kudamatsu

17 January, 2018

Discussion Time

For your term paper...

Does the legislative bargaining model explain

Why won't the Japanese government discourage 

Simultaneous recruiting

of new graduates (新卒一括採用)

in the 21st century?

Background for discussion

Until 2010, Japan and South Korea

were the only countries with the practice of 新卒一括採用

According to Wikipedia (so it has to be double-checked...)

In 2010, South Korea

banned any form of age discrimination in hiring

which discouraged(?) 新卒一括採用

Background for discussion

In 2007, Council on Economic and Fiscal Policy (経済財政諮問会議)

proposed to abolish 新卒一括採用(「労働ビッグバン」)

But both managers and labor unions opposed it 

Discussion Time

For your term paper...

Does the legislative bargaining model explain

Why won't the Japanese government discourage 

Simultaneous recruiting

of new graduates (新卒一括採用)

in the 21st century?

Motivation: Why do we fight a war?

Since 1945, interstate wars

have become less frequent

But civil wars

have been widespread

# of years of conflict

If we plot...

During 1960-2006

% of countries

with 1000+ deaths

per year 

due to conflicts

Countries with 1000+ deaths per year

Countries with 25+ deaths per year

Image source: Figure 1 of Blattman and Miguel (2010)

In 2017

the following countries

had more than 3000 deaths per year due to civil wars

Afghanistan

Iraq

Libya

Mexico

Nigeria

Somalia

South Sudan

Syria

Yemen

Today's Road Map

Contest Model

Commitment Model

Evidence from Colombia

Does poverty intensify wars?

Today's Road Map

Contest Model

Commitment Model

Evidence from Colombia

Why can't peaceful solutions be feasible?

Today's Road Map

Contest Model

Commitment Model

Evidence from Colombia

Players

Two groups of people in conflict

Each simultaneously allocates their time

between production & fighting

Benefits from production

Benefits from fighting

Wages

Prize from winning the war

Agricultural yields

Profits (for firm managers)

e.g.

Political power

Mineral export revenue

e.g.

National army & Rebels

Players' action

That's the model.

To understand the optimal level of fighting for each group

we need to figure out, as usual, two things:

Extra benefit & cost

from additional fighting time

Extra benefit

Winning probability

doesn't go up much

if you have spent a lot

Fighting hours

Extra benefit from fighting time

Extra benefit

Extra benefit goes up if

Extra benefit from fighting time (cont.)

Fighting hours

The winning prize

is higher

The opponent

fights longer

or

Extra cost from fighting time

Extra cost

Wage per hour

Fighting hours

Extra cost from fighting time (cont.)

Extra cost

Wage per hour

Fighting hours

Recession reduces extra cost of fighting

Optimal fighting hours

Extra

Benefit / Cost

Wage per hour

Fighting hours

Optimal level

If the winning prize becomes more valuable...

Extra

Benefit / Cost

Wage per hour

Fighting hours

Fight

more

If hourly wage goes down...

Extra

Benefit / Cost

Wage per hour

Fighting hours

Fight

more

Poverty intensifies fighting

So far we considered each group's optimal behavior

But one group's behavior affects the other group's

e.g.

If you get attacked, you fight back

We need to find the equilibrium

If the enemy fights more...

Extra

Benefit / Cost

Wage per hour

Fighting hours

Fight

more

Your

fighting hours

Enemy's fighting hours

If the enemy fights more, you fight more

Your

fighting hours

Enemy's fighting hours

If you fight more, your enemy fights more

Your

fighting hours

Enemy's fighting hours

Fighting escalates...

Your

fighting hours

Enemy's fighting hours

Fighting escalates...

Your

fighting hours

Enemy's fighting hours

Fighting escalates...

Your

fighting hours

Enemy's fighting hours

Fighting escalates...

Your

fighting hours

Enemy's fighting hours

Fighting escalates until it reaches an equilibrium

Now consider how the equilibrium behavior changes

when one of the groups is impoverished

If hourly wage goes down...

Extra

Benefit / Cost

Wage per hour

Fighting hours

Fight

more

Remember:

Your

fighting hours

Enemy's fighting hours

If the enemy's wage goes down, they fight more

Your

fighting hours

Enemy's fighting hours

In equilibrium, both sides fight more

Poverty for one side

escalates fighting on both sides

Summary

Poverty

You don't earn much by working

Fighting is relatively more attractive

More

intensified

conflicts

The opponent is fighting back

Evidence from Colombia

Civil wars in Colombia (since 1960s)

Communist guerrillas

Paramilitary groups

Testing whether lower wage intensifies conflict

Colombia: among top 3 coffee exporters

In coffee-producing areas in Colombia, then

Lower world coffee prices = Lower wages for coffee farmers

Source: Figure 2 of Dube and Vargas (2013)

Data

For each of 978 municipalities:

# of guerrilla attacks

# of paramilitary attacks

# of clashes between the two sides

# of casualities

in each year between 1988 and 2005

Amount of land for coffee cultivation in 1997

For each year between 1988 and 2005

World prices of coffee

Coffee-growing

municipalities

of Colombia

Source: Figure 1A of Dube and Vargas (2013)

Estimation strategy: Difference-in-differences

(cf. Lectures 11 and 13)

Years of low coffee prices Years of high coffee prices
Coffee
producing municipalities

A

B

Others
 

C

D

Impact of low wage on conflict

= (A - B) - (C - D)

Conflict intensifies more in coffee areas

when world coffee price drops

Source: Figure 4 of Dube and Vargas (2013)

By how much?

Coffee price dropped by 68% from 1997 to 2003

The rise in conflict is larger for coffee areas than for the rest

by 18%  -  31% of the average level

Source: p. 1403 of Dube and Vargas (2013)

Today's Road Map

Contest Model

Commitment Model

Evidence from Colombia

The contest model explains what intensifies a war

If the two parties agree to split the winning prize

both are better off

Because then both parties work full-time to earn wage

The commitment model explains when a war cannot be avoided

but doesn't explain why a war cannot be avoided

Imagine...

Two parties, A & B, cannot agree on something

e.g.

North Korea

Wants to continue their nuclear weapon development

U.S.

Wants to stop it

We now model the process of negotiation

Timing of Events

1

Party A decides whether to compromise

A

Compromise

Doesn't

War

Peace

B

B

War

Peace

Timing of Events

1

Party A decides whether to compromise

A

Compromise

Doesn't

War

Peace

B

B

War

Peace

2

Party B decides whether to stage a war 

Suppose it's optimal for B to stage a war

if and only if A doesn't compromise

How peace can be achieved in this model

A

Compromise

Doesn't

War

Peace

B

B

War

Peace

How peace can be achieved in this model (cont.)

A

Compromise

Doesn't

War

Peace

B

B

War

Peace

Then it's optimal for A

to compromise when the war is more costly

However, there is always tomorrow.

A

Compromise

Doesn't

War

B

B

War

Peace

Extend the model

to a two-period one

A

Compromise

Doesn't

War

Peace

B

B

War

Peace

A

Compromise

Doesn't

War

B

B

War

Peace

Extend the model

to a two-period one

A

Compromise

Doesn't

War

Peace

B

B

War

Peace

A

Compromise

Doesn't

War

B

B

War

Peace

Does B still choose peace in period 1 ?

A

Compromise

Doesn't

War

B

B

War

Peace

Suppose in next period it's optimal for B

not to stage a war even if A doesn't compromise

e.g.

Skillful military leaders die

More difficult to recruit solidiers due to the economic boom

How peace cannot be achieved

Peace

A

Compromise

Doesn't

War

B

B

War

Peace

How peace cannot be achieved (cont.)

Peace

Then it's optimal for A

not to compromise when the war is more costly

e.g.

North Korea kept their nuclear weapon development

as they didn't believe that U.S. will otherwise attack them

A

Compromise

Doesn't

War

Peace

B

B

War

Peace

A

Compromise

Doesn't

War

B

B

War

Peace

If B anticipates that A won't compromise in the next period

what should B do today?

Compromise

Doesn't

War

Peace

B

B

War

Peace

A

Compromise

Doesn't

War

B

B

War

Peace

It can be optimal

for B to go to war

even if

A compromises.

A

Compromise

Doesn't

War

Peace

B

B

War

Peace

A

Compromise

Doesn't

War

B

B

War

Peace

A

B may be militarily weaker

in next period

Compromise

Doesn't

War

Peace

B

B

War

Peace

A

Compromise

Doesn't

War

B

B

War

Peace

A

Then, A cannot commit

to compromise

in next period

Compromise

Doesn't

War

Peace

B

B

War

Peace

A

Compromise

Doesn't

War

B

B

War

Peace

A

Anticipating this

B prefers a war while

they are militarily strong

A's lack of commitment to future compromise

makes a costly war unavoidable

Evidence?

Not available (yet)

Difficult to measure

the anticipated changes

in military strength

Next week...

Term paper workshop !

Pick one model that is likely to explain the policy of your choice

Provide facts and evidence in favor of (or against) your argument

Each of you have 8 minutes including discussions

Next week...

Term paper workshop !

Pick one model that is likely to explain the policy of your choice

Provide facts and evidence in favor of (or against) your argument

Each of you have 8 minutes including discussions

Aim: Come up with a wrong answer

For Term Paper Workshop

This lecture is based on the following academic articles:

Commitment Model

Garfinkel, Michelle R., and Stergios Skaperdas. 2006. "Economics of Conflict: An Overview." in Sandler, T., and K. Hartley (Eds.), Handbook of Defense Economics. Elsevier, pp. 649–709.

Contest Model

Evidence from Colombia

Dube, O., and J.F. Vargas. 2013. "Commodity Price Shocks and Civil Conflict: Evidence from Colombia." The Review of Economic Studies, 80(4): 1384–1421.

Powell, Robert. 2006. "War as a Commitment Problem." International Organization, 60 169–203.

Politics through the Lens of Economics: Lecture 14 War

By Masayuki Kudamatsu

Politics through the Lens of Economics: Lecture 14 War

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