We develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented. Our focus … is on the interaction between the scarcity of resources and the incentives for war in the presence of limited commitment …. We show that a key parameter determining the incentives for war is the elasticity of demand. Our first result identifies …

' lending incentives and the emergence of systemic risk. We show that under natural contracting assumptions, banks fail to … banks' private incentives may lead to the formation of financial networks that are overly susceptible to systemic meltdowns …