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Territorial Conflict over Endogenous Rents

I study a model of conflict over territories from which rents are endogenously generated. Territorial conquest affects market power and, thus, rents. As such, there is an endogenous relationship between conflict behavior and economic behavior. Consistent with standard intuitions, changes to economic conditions that increase market power or market size at all territories lead to a positive association between rents and conflict. However, contrary to these same intuitions, changes in local economic conditions at a territory under dispute can lead to a negative, positive, or nonmonotone association between rents and conflict. The local comparative statics show that shocks at one territory have effects on violence at other territories and that the sign of these effects is heterogeneous. These local comparative statics also facilitate a theoretical exploration of the sign and magnitude of the bias associated with standard empirical strategies for estimating the effect of economic shocks on conflict outcomes.