Download Economics, War, Peace and Games-playing

Economics, War, Peace and
Games-playing
War and peace as an economic problem
• Over $1 trillion spent on the military in 2004 –
about 2.6% of world GDP). (SIPRI)
• War disastrous for economic and human
development:
– Destruction of property and infrastructure
– Huge numbers of refugees and displaced persons – cut
off from land, work, education, etc.
– Loss of investment, tourism, etc.
– Appropriation of resources by warring parties
• War also has economic causes.
• But economics of conflict, defence, peace,
security, a marginal branch of economics.
Military spending data: Stockholm International Peace Research
Institute, http://www.sipri.org
A resource allocation problem
• Neo-classical economics deals with “rational economic
(wo)man” – war often seen as a failure of rationality:
insane dictators, ancient ethnic hatreds, etc.
• But armed conflict can be seen in terms of most basic
idea of economics: allocation of scarce resources.
• Two ways of obtaining resources:
– Production and exchange
– Fighting
• “Production or Predation” (Hirshleiffer, 2001)
• History suggests second highly significant – but
economics concentrates almost entirely on first.
• Also can apply to crime, political/industrial conflict, etc.
Jack Hirshleiffer, “The Dark Side of the Force: Economic
Foundations of Conflict Theory”, CUP, 2001.
The Production vs Predation choice
• Nations, individuals, groups have choice of allocating
resources to productive activities, or to predatory
activities (or defence against such).
• Each choice involves an opportunity cost
• Civil war far more common in poor and economically
stagnant countries: lower opportunity cost for engaging
in conflictual activities.
• Strong link between unemployment and crime:
unemployed have more time available, less to lose if
caught.
• Choices (e.g. for nations) interdependent: what I do
affects my neighbour’s choices, and vice versa.
• Resources devoted to predatory activity reduce total
available to everyone – so leads to pareto inefficiency.
Conflict and interaction : game theory
• Analysis of conflict, military spending, arms races
etc. frequently makes use of Game Theory – also
used for study of oligopolistic markets
• Common feature: each party must make decisions
taking into account the likely responses of others.
• Prisoner’s Dilemma model widely used to model
arms races, and oligopoly pricing decisions. Two
prisoners interrogated separately: if both remain
silent, only enough evidence for lesser charge: 2
years in prison each. If one confesses, other is
silent, ‘good’ prisoner gets 1 year, other one gets 5
years. Both confess: each get 3 years.
Prisoner’s Dilemma
Prisoner B
Silent
Talk
(2,2)
(5,1)
Prisoner A
Silent
Talk
(1,5)
(3,3)
• Choice for A: if B talks, then A can talk and get 3
years, or stay silent and get 5. So better to talk.
• If B stays silent, A can talk and get 1 year, or stay
silent and get 2. So better to talk.
• So either way better to talk! Same for B.
• But both would be better off if they stayed silent.
Applications of PD
• Oligopoly: firms face choice of collusion or
competition – maintaining high prices (“stay silent”),
or price war (“talk”). Incentive to choose low, to gain
competitive advantage, or not to lose out, though
both do better with high prices.
• Rival nations may choose high levels of armaments
(“talk”) or low (“stay silent”). Incentive to choose high
arms to gain miltary advantage, or not to fall behind,
though both do better with low arms.
• A lot of study of repeated game – if interactions are
repeated, players may choose to ‘co-operate’ rather
than ‘defect’ – potential for reward/punishment
strategies, etc. (E.g. Axelrod (1985)).
Robert Axelrod, “The Evolution of Co-operation”, Basic Books, 1985.
Games in the classroom
• Prisoner’s Dilemma easy to simulate, fun, and (I find)
educational.
• Give each student a number of counters. Keep a large
reserve.
• Each student finds a partner. On count of 3, each
player shows the other either an open hand (“cooperate”) or a fist (“defect”).
• If you show a fist, you get to take a counter from your
partner. If you show an open hand, your partner gets
to take a counter from the pool. Effects add up. (e.g.
two fists cancel out).
• Two versions: change partner each round, same
partner for large number of rounds.
Production vs Predation game
• Each player has ten counters to play with. Each round,
each player places counters into one of two piles:
“Production” and “Acquisition”. (At least one in each).
• Total counters in production piles for both (all) players
gives total “output”.
• Each player’s Acquisition total determines their share
of the output, used to give “score”. (Need calculators!)
• E.g. Player A puts 3 in Acquisition pile, player B puts 1.
Total output is 16. Player A gets ¾, or 12, B gets 4.
• Open to many variations. (E.g., 2 or more players;
single or repeated interactions; unequal resources;
scores from each round available for future
production/predation or just “banked”).