ECONOMIC MODELING OF INTERNATIONAL CONFLICT

Abstract

All economic models have certain features in common: there must be optimizing decisions at the level of decision-makers and the resulting equilibrium due to the interaction of all these decisions at the aggregate level. In addition, decisions should be subject to some resource constraint. Conflict theory is not just one of the branches of economic analysis or a set of similar topics of crime, labor disputes, litigation, but a microeconomic approach to achieving unilateral advantage instead of mutual advantage. If the theory of macroeconomic analysis and the theory of microeconomic analysis involve the usual processes of production, through which resource inputs are transformed into desirable goods, the theory of conflict involves the technology of confrontation and struggle. In the process of conflict, the role of inputs is played by military efforts, which generate outputs in the form of the final distribution of resources and incomes among all parties. The shape of the settlement possibilities curve may indicate that these parties’ opportunities are complementary and harmonious: both parties can gain by working together, and the largest aggregate outcome is achieved when the parties have approximately equal benefits. The negative slope of a party’s indifference curve indicates the party’s preferences for cooperation. The shape of the adjustment possibilities curve may indicate that these parties’ possibilities are disharmonious, when roughly equal distributions of income yield less aggregate outcome than unequal distributions. Although ex-post transfers may divide the aggregate outcome more evenly, all such possibilities are accounted for by the shape of the settlement possibility curve. A positive slope of a party’s indifference curve indicates this party’s reluctance to cooperate. Both parties may have inconsistent and subjectively optimistic perceptions of the consequences of non-settlement: in the event of a failed settlement attempt, each party believes that it will win (relative to the status quo). These features narrow the potential settlement region (perhaps to an empty set) and worsen the prospects for settlement.