Explaining Conict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future*

We examine two factors that help explain the prevalence of con‡ict in low-income countries: that adversaries cannot enforce long-term contracts in arms, and that open con‡ict alters the future strategic positions of the adversaries di¤erently than does peace. Using an in…nite horizon model, we show the conditions under which adversaries will not be able to sustain short-term contracts even though doing so leads to social losses associated with open con‡ict. Con‡ict arises because adversaries attempt to gain future strategic supremacy that only victory in con‡ict brings. Higher discount factors and the less destructive con‡ict is, the higher is the likelihood of war. *We would like to thank Jim Fearon, Arye Hillman, Kai Konrad, Bob Powell and seminar participants for valuable comments, and especially Roger Myerson for both comments and for discovering an error in section 3 of a previous version of the paper.