Conflict and returns to scale in production

Abstract

We develop a conflict model but rather than output being subject to appropriation, one of the inputs to production is partially insecure. We find that how a player responds to an increase in the secure portion of its resource depends on the returns to scale in production. With increasing (decreasing) returns to scale, an increase in the secure portion of the resource will increase (decrease) that player’s effort to contest the resource. We also show that with increasing (decreasing) returns to scale the player controlling more of the secure resource exerts higher (lower) equilibrium effort in the contest for the unsecure resource. For constant returns to scale, players’ efforts remain unaffected by the amount of secured resources controlled. Our findings imply that territorial expansions by large actors will be more likely observed within the context of production technologies subject to increasing returns to scale (e.g. oil extraction). With decreasing returns to scale (e.g. alluvial diamonds, agricultural land), we predict more intense conflict by small actors.