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War, whether external or internal, large or small, is a costly endeavor. Loss of life, loss of close friends or family, and the destruction of material possessions all play a part in the costs of war. The purpose of this paper is to capture only the material, economic welfare costs of conflict stemming from the altered path of consumption resulting from conflict. As such, the measure is quite a lower bound for the true and more encompassing welfare loss from living in a non-peaceful world. But how much would individual be willing to pay to avoid just the economic costs of conflict? Remarkably, even these pure economic welfare losses from conflict are quite large. I find that, on average, individuals who live in a country that has experienced some conflict during the 1960-1992 sample would permanently give up to approximately 8 percent of their current level of consumption to live in a purely peaceful world. Such large potential welfare gains from reducing warfare should make economists and policy-makers take note, and continue to investigate and advocate for domestic and international institutions to realize such gains.

This paper presents a general equilibrium model of conflict based on a world populated by representative democracies. At the individual state level, when information regarding a leader's ability to defend the state against unavoidable conflict is valuable to voters, an incumbent leader seeking reelection may be tempted into potentially avoidable conflicts to demonstrate his ability and enhance his reelection prospects. As a result, democratic states may be responsible for at least some international conflict. In this paper, we investigate whether this motive is sufficiently important for war to persist in equilibrium if all countries are democracies. Three key findings emerge. First, the perpetual peace equilibrium hypothesized by Immanuel Kant (1795, 1991) always exists. The reason is that in the absence of the threat of war, leaders are unable to divert the public's attention away from domestic considerations. Consequently, the incentive for potentially avoidable conflicts vanishes. Second, if leaders are not sufficiently benevolent and wars are costly in expectation, then additional equilibria exist with a positive war frequency. Third, if multiple equilibria exist, the perpetual peace equilibrium with positive war frequency becomes the only stable outcome. The model is further extended to analyze the role of appropriative conflicts and non-democratic regimes. it is shown that if the diversionary motive of democratic leaders is strong, a more democratic world may not necessarily be more peaceful. We discuss the role that norms and institutions can play in facilitating a more peaceful world in democracies - for example, free trade areas and alliance formation.

This paper presents a macroeconomic model where governments are motivated both by their ideological preference for alternative fiscal policies that vary in their short run and long run consequences and by their reelection prospects. I prove that a sequential equilibrium exists in which moderate incumbents compromise their ideologies in order to get reelected, while extreme governments forego reelection but tie the hands of their successors. The view implied by this model is that incumbent governments, in order to get reelected, do not ideologically differentiate themselves from one another since such behavior is likely to result in loss of office. Alternatively, governments that are either subsequently not reelected or are lame ducks pursue ideologically preferred policies since they are less constrained by the electorate.

Guns and Butter examines the causes and consequences of war from a political economy perspective, taking as its premise that a consideration of the incentives and constraints faced by individuals and groups is paramount in understanding conflict decision making. The chapter authors - leading economists and political scientists - believe that this perspective offers deeper insights into war and peace choices than the standard state-centric approach. Their contributions offer both theoretical and empirical support for the political economy perspective on conflict. - Several broad themes cut across the chapters: war as an equilibrium phenomenon rather than an exogenous process; the interaction of politics, economics, and institutions and its effect on the frequency and severity of conflicts; the cost of fighting; and the often innovative character of conflict. Topics addressed include theoretical aspects of the ways in which domestic politics affects the decision to go to war; globalization and its effect on the net supply of terrorism; open markets and the likelihood of war and domestic insecurity; the costs of going to war in Iraq as compared to the costs of containment; the economic effects of the Rwandan genocide at a household level; and the evolving industrial organization of terrorist groups.

This paper presents a general equilibrium model of conflict based on a world populated by representative democracies. At the individual state level, when information regarding a leader's ability to defend the state against unavoidable conflict is va luable to voters, an incumbent leader seeking reelection may be tempted into potentially avoidable conflicts to demonstrate his ability and enhance his reelection prospects. As a result, democratic states may be responsible for at least some international conflict. In this paper, we investigate whether this motive is sufficiently important for war to persist in equilibrium if all countries are democracies. Three key findings emerge. First, the perpetual peace equilibrium hypothesized by Immanuel Kant (1795, 1991) always exists. The reason is that in the absence of the threat of war, leaders are unable to divert the public's attention away from domestic considerations. Consequently, the incentive for potentially avoidable conflicts vanishes. Second, if leader s are not sufficiently benevolent and wars are costly in expectation, then additional equilibria exist with a positive war frequency. Third, if multiple equilibria exist, the perpetual peace equilibrium may be unstable in which case an equilibrium with po sitive war frequency becomes the only stable outcome. The model is further extended to analyze the role of appropriative conflicts and non-democratic regimes. It is shown that if the diversionary motive of democratic leaders is strong, a more democratic world may not necessarily be more peaceful. We discuss the role that norms and institutions can play in facilitating a more peaceful world with democracies - for example, free trade areas and alliance formation.