Conict and Policy in General Equilibrium: Insights from a Standard Trade Model

We revisit a framework of con‡ict in a canonic open economy model to examine appropriate policy responses. We derive further implications of the framework, we link them to other results in the literature, and we explore the scope and limits of the analogy between policy analysis in a con‡ict economy and the policy analysis under distortions o¤ered by the traditional trade literature. We rank alternative economic policies as a response to con‡ict in terms of welfare implications. JEL Classi…cation: D72, D74, D78, F13, H23, K42, O1. Keywords: con‡ict, civil war, crime, trade policy, intervention, second best. We thank Juan Carlos Hallak and Shanker Satyanath as well as the editors Michelle Gar…nkel and Stergios Skaperdas for very helpful comments.