Workers, Warriors and Criminals: Social Conflict in General Equilibrium

We offer a simple general equilibrium model to analyze how economy-wide forces (i.e. shocks to terms of trade, technology and endowments) will affect the intensity of social conflict over the distribution of resources. Examples of conflict activities range from crime to civil war. We show that not all favorable shocks to an economy will reduce conflict, even when they could make society richer. Rather, positive shocks to labor intensive industries will raise wages and diminish social conflict, while positive shocks to capital intensive industries will do just the opposite. The key requirement is that the appropriation activity be more labor intensive than the average of the productive industries. Our model can account for the curse of natural resources, it explains why aid in kind to war ridden societies may have perverse effects, and how international trade policy should be debated if civil conflict in poorer countries is a concern. Including appropriation activities into a canonic general equilibrium model introduces a social constraint to policy analysis. Thus, we can also account for "optimal populist" policies, and "national development" strategies