Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 16/2010: Aggressive elites and vulnerable entrepreneurs - trust and cooperation in the shadow of conflict

Halvor Mehlum () and Karl Ove Moene ()
Additional contact information
Halvor Mehlum: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Karl Ove Moene: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway

Abstract: We explore the implications of having a divided society where group leaders have motives for aggression towards other groups but where entrepreneurs have a desire for cooperation and peace. We assert that it is members of the elites who start conflicts and wage wars while the entrepreneurs undertake the type of economic activities that they find most profitable given the circumstances. We derive implications for peace and conflict. We find conflict induced poverty traps with self-fulfilling expectations about conflict and we derive implications for peace building strategies.

Keywords: Conflict; investments; trust; cooperation

JEL-codes: C73; D72; D74

37 pages, January 3, 2011

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