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Article Excerpt
I. INTRODUCTION
Given that conflict is costly, why does it occur? When both parties believe that they are the probable winner, and the winner captures a positive surplus, conflict is the obvious consequence. Should we, then, observe conflict only when both parties expect to win? Many historical and everyday examples suggest that conflict takes place, more often than not, even when one of the two parties is clearly the expected loser and the loser himself agrees with this prediction. The occurrence of conflict, in this case, is less easy to understand. It is not surprising that one party may expect to gain from a conflict. But if both parties agree that one side is likely to win and one to lose, is there not room for the potential loser to make a concession that would avoid the costs of conflict? In other words: Why, in many circumstances, do we fail to observe the expected loser appeasing the expected winner, thereby avoiding conflict and even worse losses? This is the question we pose here, following along the steps of Hirshleifer (2001) and, of course, of the Coase Theorem: If we can make a deal, why fight?
As a practical, and unfortunately everyday more relevant example, the Israeli-Palestinian fight is the paramount case of a conflict that is impossible to understand and resolve on purely rational grounds. Clearly, both parties are losing from the fight but, equally clearly, the Palestinian side has lost much more during the past 59 yr than the Israeli side. Further, in the foreseeable future, it seems quite unlikely that the Palestinian side will achieve substantial gains through conflict, let alone "win the war." Still, neither side seems willing to undertake serious negotiations to avoid the cost of war. This appears contrary to the consequentialist notion of rational decision making and we may conjecture that the source of irrationality lies in the religious beliefs of the two parties. Obviously, this explanation cannot be denied a priori and, as long as conflict continues, it cannot be disproved; still, this article tries to understand why Israeli and Palestinians may keep fighting even if both were rational actors.
Our main clue is that the apparently avoidable conflicts become unavoidable when a large indivisibility is at stake and there is no third party at hand that can enforce an allocation. The idea that conflict is due to indivisibilities seems to be well understood in the political science literature concerned with conflict. Notice, though, that true indivisibilities imply conflict till total defeat of one of the two parties and this is not often seen in reality. Hence, the "degree" or "size" of the indivisibility is relevant.
Existing analysis of conflict takes place in a static setting. Here, we examine the dynamics of conflict and specifically focus on the problem of time consistency. We investigate the extent to which the potential loser may not be willing to make a concession because the potential winner cannot credibly commit to avoiding a conflict even after the concession has been made. After receiving the concession, the potential winner's position is strengthened and he can demand even more. Recognizing this, the potential loser might choose not to make the initial concession, believing that it will lead to a slippery slope of further demands and further concessions.
Commenting on the claim that war is just trade by other means, Hirshleifer wrote:
I don't recommend thinking of it this way. It is true that, on the individual level, people's motives might be just as mean and nasty in trade as in warfare. The crucial point is that exchange and war are different on the social level. There are two main types of differences. First, trade (if we can assume that transaction costs are negligible) conserves social totals of desired goods, whereas warfare reduces them. Even in the absence of actual battle damage, warfare involves an opportunity cost--due to diverting resources toward the technology of conflict. Second, trade actually does better than merely conserving social totals, since the redistribution thereof is mutually preferred. Warfare, even if there were not too much in the way of battle damage or even opportunity cost, would still not lead to a mutually desired reshuffling of the social totals.
This reasoning suggests that when choice is possible, trade should be chosen over conflict. Strikingly, in the baseline case of common beliefs and identical time preferences, if the size of indivisibility is sufficiently small, conflict can always be avoided by a series of small concessions, with both parties recognizing that there will be additional concessions in the future. We provide a rigorous proof of this theorem. (1) Since conflict is, as a means to accommodate opposing interests, the exception rather than the rule, this result should not be too dismaying. We believe, moreover, that there are valid historical examples where conflict was avoided through a series of small concessions, with both parties correctly expecting additional future concessions. One such example appears to be the extension of the voting franchise in England during the 17-20th centuries. This took place in gradual increments, and there appears to be explicit recognition that current concessions would lead also to future concessions. Another is the way in which the Spanish constitutional system has handled the Catalonian and Basque requests...
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