Battlefields and Marketplaces

Divided societies in the developing world experience wasteful struggles for power. We study the relationship between political stability and resources wasted in the struggle within a model of competitive power contests. The model of power contests is similar in structure to models describing oligopolistic market competition. This analogy helps us in deriving results that are new to the conflict literature. We show, for example, that the Herfindahl-Hirschman index can be interpreted as a measure of power concentration and that a peace treaty between fighting groups have a parallel in tacit collusion between firms in a market.Violent conflicts, Rent-seeking games, Herfindahl-Hirschman index, Oligopolistic competition.

With or Without U? - The appropriate test for a U shaped relationship.

Non-linear relationships are common in economic theory, and such relationships are also frequently tested empirically. We argue that the usual test of non-linear relationships is flawed, and derive the appropriate test for a U shaped relationship. Our test gives the exact necessary and sufficient conditions for the test of a U shape in both finite samples and for a large class of models.U shape; hypothesis test; Kuznets curve; Fieller interval

Destructive Creativity

Destructive creativity implies that parasites become more efficient in rent extraction. We focus on destructive creativity in situations where parasites live on rents extracted from the producers. A higher parasitic strength implies that the waste associated with rent seeking increases, and in the long run erodes business productivity, implying that the sustainability of predation is threatened by improved efficiency.

Cursed by resources or institutions?

Natural resource abundant countries constitute both growth losers and growth winners, and the main difference between the success cases and the cases of failure lays in the quality of institutions. With grabber friendly institutions more natural resources push aggregate income down, while with producer friendly institutions more natural resources increase income. Such a theory finds strong support in data. A key question we also discuss is if resources in addition alter the quality of institutions. When that is the case, countries with bad institutions suffer a double resource curse - as the deterioration of institutions strenghtens the negative effect of more natural resources.Natural resources; Institutional quality; Growth; Rent-seeking

Plunder & Protection Inc

When the state fails to supply basic security and protection of property, violent entrepreneurs not only seize the opportunity of plundering, but some also enter the protection business and provide protection against plunderers. This uncoordinated division of labor is advantageous for the entire group of violent entrepreneurs. Hence, in weak states a situation may arise where a large number of violent entrepreneurs can operate side by side as plunderers and protectors squeezing the producers from both sides. The problem reached new levels at the end of the cold war. As military forces were demobilized without civilian jobs to go to, many countries got an oversupply of qualified violent people for crime, warfare and private protection. In this .market for extortion. the entry of new violent entrepreneurs enhances the proÞtability of them all. The supply of violence creates its own demand; an externality of violence that is detrimental to the development in poor countries

The savings multiplier

A theory of macroeconomic development based on the novel concept of savings multiplier is developed. Capital accumulation changes relative prices, amplifying incentives to save as the economy grows. The savings multiplier hinges on two mechanisms. First, accumulation raises wages and leads to redistribution from the consuming old to the saving young. Second, higher wages raise the price of old-age care and, in anticipation of this, the young save more. Our theory captures important aspects of China’s development and suggests new channels through which the one child policy and the dismantling of social benefits have fueled China’s savings rates