We construct a dynamic theory of civil conflict hinging on inter-ethnic trust and trade. The model economy is … beliefs on the average propensity to trade of the other group. Since confict disrupts trade, the onset of a conflict signals … after each conflict episode. Third, "accidental" conflicts that do not reflect economic fundamentals can lead to a permanent …

policies and policies aimed at mitigating conflict through financial innovations. I illustrate these implications using …

We construct a dynamic theory of civil conflict hinging on inter-ethnic trust and trade. The model economy is … beliefs on the average propensity to trade of the other group. Since conflict disrupts trade, the onset of a conflict signals … after each conflict episode. Third, "accidental" conflicts that do not reflect economic fundamentals can lead to a permanent …