Introduction

Conflict comes in multiples shapes: international wars, revolutionary civil wars, secessionist civil wars, colonial independence conflicts, separatist domestic terrorism, international terrorism, narco-guerrillas, state violence, revolutions and genocide may expectedly have specific causes, levels of belligerence, dynamics and persistence. The economics literature, however, has developed a narrower theoretical standard set-up that analyses civil conflict. For example, in Grossman (1991), a government and rebel group maximize their expected utility from states of war and peace. The government party has access to revenues and royalties, but is threatened by the excluded rebel group, which may violently overthrow it. As an extension, the government may use the fiscal system to transfer resources to rebels to ‘buy’ peace and an external third party may contribute resources and/or set incentives for the local parties to commit to peace. Recently, Murshed (2010) has argued that the dichotomy between greed (appropriation of rents, see Collier & Hoeffler 1998, 2004) and grievance (deep-rooted injustices, as expounded by Gurr 1970 and later by Stewart 2000) in this standard model to explain the origin of conflict should shift into a balance in which both co-exist. Some studies reject the inequality-grievance hypothesis (Collier & Hoeffler 1998, 2004; Fearon & Laitin 2003); others stress it (Stewart 2000; Østby 2008; Cederman, Weidmann & Gleditsch 2011). As Murshed (2010) points out, the salience of grievances emerges more in the local study of conflict, whereas greed explanations tend to dominate cross-country studies (with Østby 2008 and Cederman, Weidmann & Gleditsch 2011 being exceptions).

But what has not yet been analytically explored is an endogenous relation between greed and grievance. Murshed (2010) argues that either or both greed and grievance may explain the onset of conflict or its duration; neither, however, is sufficient in explaining the ultimate cause of conflict, something which may be attributed to the failure of the mechanisms that peacefully resolve differences (the social contract) (see also Addison & Murshed 2001). This is also related to state capacity. Besley and Persson (2008) argue that external wars may promote the development of state capacity on behalf of a common interest externally threatened. Instead, prospects of internal conflict may de-incentivize a government from investing in state capacity.