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This paper develops a positive analysis of stable group formation, highlighting the role of conflict management within groups. The analysis builds on a simple economic model that features a "winner-take-all" contest for control of some resource. When a group forms, members pool their efforts in that contest and, if successful, apply the resource to a joint production process. While reducing the severity of conflict over the contestable resource relative to the case of individual conflict, the formation of groups adds another layer of conflict, that is, one between the members of the winning group over the distribution of their joint product. The effectiveness of conflict management in enabling groups to resolve this second layer of conflict in more "peaceful" ways has some important implications for the equilibrium structure of groups as well as for the allocation of resources.

This paper considers an economy where groups compete in a contest for power to redistribute future income in their favor. An increased external threat of terrorism -- either an increase in the likelihood of a successful terrorist attack or a greater loss of income in the event of a successful attack -- would tend to reduce the expected value of the contest prize & thus lessen the severity of the conflict at home. However, unless the marginal return from guarding against terrorism is not too large or diminishes at a sufficiently fast rate, such a shock could imply, in equilibrium, both a greater sense of security among the groups against external threats & a greater conflict between them in the domestic struggle for power. 1 Appendix, 16 References. [Copyright 2004 Elsevier B.V.]

This paper develops a positive analysis of alliance formation, building on a simple economic model that features a "winner-take-all" contest for control of some resource. When an alliance forms, members pool their efforts in that contest &, if successful, apply the resource to a joint production process. Due to the familiar free-rider problem, the formation of alliances tends to reduce the severity of the conflict over the contestable resource. Despite the conflict that arises among the winning alliance's members over the distribution of their joint product, under reasonable conditions, this effect alone is sufficient to support stable alliance formation in a noncooperative equilibrium. 3 Tables, 1 Appendix, 31 References. [Copyright 2003 Elsevier B.V.]

The book 'Political Pressure, Rhetoric, and Monetary Policy: Lessons for the European Central Bank' by Philipp Maier is reviewed.

This collection of essays departs from the conventional economic paradigm wherein individuals or groups choose among various productive activities for mutually beneficial trade. Each essay recognizes that where property rights are not well defined or easily enforced, individuals may forgo productive opportunities and engage in appropriative activities to compete for property, income, rights or privileges. Though the essays differ in their focus, each illustrates the importance of the institutional setting in determining economic activity. The first of the two sets of essays examines the allocation of resources among productive and appropriative activities in an anarchical political environment, without legal or constitutional tradition. Their objective is to understand different facets of the emergence of order and restraint on individual behaviour out of conditions with few or no assumed constraints. The second set focuses on different types of political institutions, illustrating how they shape conflict and economic activity, and how they themselves can be shaped by conflict

On the basis of a single-period, guns-versus-butter, complete-information model in which two agents dispute control over an insecure portion of their combined output, we study the choice between a peace agreement that maintains the status quo without arming (or unarmed peace) and open conflict (or war) that is possibly destructive. With a focus on outcomes that are immune to both unilateral deviations and coalitional deviations, we find that, depending on war's destructive effects, the degree of output security and the initial distribution of resources, peace can, but need not necessarily, emerge in equilibrium. We also find that, ex ante resource transfers without commitments can improve the prospects for peace, but only when the configuration of parameters describing the degree of output security and the degree of war's destruction ensure the possibility of peace without such transfers at least for some sufficiently even initial resource distributions.

Abstract
In this paper, we study alternative forms of conflict resolution, both peaceful
and non-peaceful, between two countries that compete for claims to a resource
used to produce potentially traded goods. Consistent with the classical liberal
argument, peace supports mutually beneficial trade, whereas war preempts it. War
always induces countries to allocate resources into non-contractible arming
("guns") for superiority in conflict. Under peaceful settlement,
countries might choose to arm as well for gaining leverage in negotiations, but
arming is typically less than what it is under war. Building on the observation
that arming itself affects the countries' bargaining sets, we compare the
efficiency properties of division rules generated by three prominent bargaining
solutions – namely, splitting the surplus, equal sacrifice, and Nash
bargaining – and show how they depend on the gains from trade.