War’s Inefficiency Puzzle

Suppose a country discovers an oil deposit on its border with a second country. Both expect to receive positive payoffs if they fight over it. Does this explain war?

Takeaway Points

  1. If states refuse to bargain, they will fight.
  2. Fighting is costly. As such, even if war provides a positive payoff for both countries, a bargained resolution should be more profitable for both.
  3. The question is whether this is a numerical quirk for the particular example or indicative of a trend. We will answer that in the next lecture.