I examine the conditions under which trade can support peaceful coexistence and prosperity when particular social and ethnic groups are cheap targets of violence. A simple theoretical framework reveals that for a broad set of cases, while inter-group competition generates incentives for...

We analyze the classic problem of sustaining trust when cheating and leaving trading partners is easy, and outside enforcement is difficult. We construct equilibria where individuals are loyal to smaller groups – communities – that allow repeated interaction. Hierarchies provide incentives...