Indicators of Potential Conflict

This paper focuses on the main factors that contribute to the dangers of violent internal conflict erupting, or re-igniting after a peace has been concluded. The conflict literature has identified greed and grievance as the principle causes of conflict. But for either of them to take the form of large-scale violence there must be other factors at work, specifically a weakening of the 'social contract'. Such a viable social contract can be sufficient to restrain opportunistic behaviour such as theft of resource rents and violent expression of grievance. The social contract, therefore, refers to the mechanisms and institutions of peaceful conflict resolution. Three main risk factors are considered in this briefing: The breakdown of redistributive mechanisms, democratic transitions and lack of economic progress.Conflict, civil war, greed versus grievance, social contract, democratic transition, redistributive mechanisms

Social Contracts, Civil Conflicts and International Peacemaking

The regularity with which peace deals break down and civil wars resume is well established. This briefing looks at the factors that drive violent conflicts, and the factors that may undermine peace deals, including those brokered and supported by international third parties. For peace to last, agreements must be viable, credible and enforceable, and the commitment of donors must not be in doubt. For these conditions to be in place, conflict resolution must be in donors' interests.Civil war, Social Contract, Aid for Peace

On the Interaction between Fear and Hatred

This paper models conflictual interaction between a European state and a domestic dissident immigrant minority group, Muslims say, some of whom may resort to acts of terrorism. Here, identity is crucial and provides the micro-foundations of dissident behaviour by solving the collective action problem; however, complex multiple identities are possible. Militancy or hatred of the West arises both because of the economic and social disadvantage experienced by Muslims or horizontal inequalities, as well as historical grievances and contemporary foreign policy actions that discriminate against the Muslim world. The fear of visible Muslim minorities among the European host population may be a product of strident propaganda emanating from certain segments of Western society. The innovation of the paper lies in modelling the interaction between fear and hatred. Excessive deterrence against 'dangerous' minority groups may backfire, compared to more accommodative policies. Space needs to be created so that Muslim migrants are able to merge their personal identities within their adopted European homelands. Also, the economic disadvantage experienced by Muslims needs redressing.European Security, Conflict, Terrorism

On the Non-Contractual Nature of Donor-Recipient Interaction in Development Assistance

This paper analyses three issues in strategic donor-recipient interaction motivated by the complexity of the rationale underlying aid. The first is when we have several principals with conflicting objectives. Any one principal cannot offer high powered incentives to the agent to carry out their designated task. The second is to do with the fact that effort associated with ensuring aid effectiveness may concern both principal and agent; the optimal solution to which requires difficult to design cooperative behaviour. Consequently, the contractual type principal-agent relationship between donors and recipients is inappropriate. We need to consider models that signal recipient quality or commitment to reform. A simple model of signalling with commitment problems is presented, along with extensions to multiple types of agents and time periods, as well as possible solutions involving mechanism design.aid, conditionality, contracting, signalling quality, mechanism design

Strategic Interaction and Donor Policy Determination in a Domestic Setting

aid effectiveness, political processes, endogenous policy formation

What Turns a Blessing into a Curse? The Political Economy of Natural Resource Wealth (Invited Lecture)

I review the relationship between natural resource endowment type and economic growth in developing countries. Certain types of natural resources, such as oil and minerals, tend to exhibit concentrated production and revenue patterns, while revenue flows from other resources such as agriculture are more diffuse. Most developing countries that export products from the first group have been prone to growth failure in recent times. The most important channels are political economy mechanisms, where there are negative relationships between natural resource rents and institutional development. An explicit model of growth collapse with micro-foundations in rent-seeking contests that have increasing returns in rent-seeking outlays is presented.Endowment Type, Growth, Institutions

(WP 2013-03) War and the Fiscal Capacity of the State

We examine the role of war in retarding state fiscal capacity in developing countries, measured by tax revenue ratios to GDP. This in contrast to the European experience from the Renaissance to the 20th century, where it is believed that war and state-building were inseparable, enhancing the fiscal capacity of the state; in turn enlarging the scope and magnitude of government expenditure. We build a simple theoretical model of a factionalized state, where patronage substitutes for common interest public goods, along with the possibility of violent contestation over a rent or prize, typically in the form of natural resource revenues. Our dynamic panel empirical analysis on the determinants of fiscal capacity is applied to 79 developing countries, during 1980-2010. Results indicate that war, especially in its current dominant form of civil war, retards fiscal capacity, along with imperfect democracy, political repression, the quality of governance, dependence on oil and macroeconomic mismanagement. High intensity conflict is particularly destructive of state capacity. Countries experiencing low intensity wars, other institutional factors may matter more for fiscal capacity formation compared to war. The diminution of state capacity due to war appears less pronounced after the end of the cold war