A Dynamic Model of Conflict and Cooperation

of production is only just sufficient to replace the stock of durable goods. This result relates
to the observation that rent-seeking activities in rich countries may result in deindustrializa-
tion as suggested by the literature on the resource curse (e.g., Sachs and Warner, 1999; Auty,
2001).² Third, our results also reveal that even if two economies are ‘similar’ in terms of the
initial levels of common-pool endowment, production technology or preferences of agents, the
economies converge to different steady states as well as follow different transitional paths. Put
it differently, the model predicts that ‘similar’ countries converge to a low-income steady state
with more unstable property rights, and some converge to a high income equilibrium with
more stable property rights.³ Which equilibria is realized in the long run depends on whether
the coordination regarding the expectations formed players successfully is achieved or not.
Neither of the above-mentioned one-shot models has addressed this indeterminacy feature.

Fourth, in the long run property rights may be ‘partially’ enforced in the sense that ap-
propriation and productive activities coexist, so that neither a totally peaceful (disarmed)
equilibrium nor a full-fighting equilibrium emerges as a long run outcome. The degree of ‘par-
tially’ cooperation would vary depending on which steady state is reached among a continuum
of steady states.

The organization of the paper is as follows. The next section describes the basic model.
Section 3 conducts comparative static analysis with respect to several principle structural pa-
rameters. Section 4 derives an efficient solution (i.e., cooperative solution) as a reference path.
Section 5 concludes the paper. Some mathematical proofs will be given in the appendices.

2 The Model

Consider an infinite horizon economy populated by n ≥ 2 agents who strategically interact.
Each of the agents derives utility from the consumption (or services) of a common-pool as-
² There is evidence that resource abundance in the definition used by Sachs and Warner (1999) is associated
with civil war (e.g., Collier and Hoeffler, 2004; Hodler, 2006).

³ Auty (2001) argues that experiences in different countries are complex and diverse. Some countries like
Malaysia, Australia, Norway, Botswana and Canada appear to have used their resources judiciously, whereas
countries like Nigeria, Mexico and Venezuela seem to have squandered their oil windfalls. According to
Acemoglu et. al. (2001) the limiting force of conflict is institutional quality as a key driver for economic growth
and prosperity.

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