A Model of Conflict, Appropriation and Production in a two-sector economy

Raul Caruso, Università Cattolica del Sacro Cuore, Istituto di Politica Economica

Abstract

This paper presents a two-sector economy. In a contested sector two agents struggle to appropriate the maximum possible fraction of a contestable output. In an uncontested sector, they hold secure property rights over the production of some goods. Agents split their resource endowment between ‘butter’, ‘guns’ and ‘ice-cream’. The latter denote productive activities secure from appropriation. It is shown how improvements in productivity can countervail destructive impact of continuous conflicts. Eventually a basic model is extended to consider a government and a rival group. A redistributive government can boost production in the uncontested sector, but at a higher level of ‘guns’.