War Signals: A Theory of Trade, Trust, and Conflict

Abstract

The theory bears some testable predictions. First, the probability of future civil wars increases after each conflict episode. Second, a sequence of "accidental" conflicts can lead to the permanent breakdown of trust, plunging a society into a state of recurrent conflicts (a war trap). This situation is irreversible and is characterized by weak cross-community trade links even in peace times. War traps are robust to additional sources of social learning, such as people learning from the direct observation of the history of cross-community trade. The incidence of conflict can be reduced by policies abating cultural barriers, fostering human capital and targeting beliefs. Coercitive peace policies such as peacekeeping forces or externally imposed regime changes have instead no persistent effects.

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