PPF, indifference curve, interdependencies between conflict and economics, pareto efficiency, rational choice model (and critiques), taxonomy of goods, utility functions

Question 1

Explain the 6 Interdependencies of conflict economics

1. choice
2. economic conditions affect conflict
3. conflict affects the economy (5 D’s)
4. conflict as a mode of wealth appropriation
5. conflict as business organizing
6. security of people as a fundamental service

Answer 1

Conflict is a choice:
1. Economics is largely the study of choices people make in a scarce world - conflict is a choice that stems from rational and irrational behaviour

2. Economic conditions affect conflict
   a. Poverty, unemployment, low growth, economic inequality. Low education, resource dependence, low trade/FDI openness, and territoriality all lead to higher risks of conflict
3. Conflict affects the economy
   a. 5 D’s
   b. Diversion of resources into the military, or weapons instead of more productive means - looking at things like military expenditure
   c. Destruction of people and property - rebuilding a population and infrastructure that comes at a loss due to war
   d. disruption of economic activities through diminishments in capital, trade, growth, and household work
   e. Displacement - internally and internationally due to fleeing persecution
   f. Development difficulties in a postwar context how challenging it is to recover the country’s institutions and economy - especially because many people will have different interests and the solution will mostly likely be imposed by the most powerful
4. Conflict is a mode of wealth appropriation
   a. Lootable assets, that is assets that can be appropriated by different actors through force
5. Conflict as business organizing
   a. When a group decides to engage in conflict, it must operate analogous to a company, it must make decisions on resource allocation in order to achieve its goals. When a rebel organization decides to mobilize, they need funds to gain support and buy arms
6. Security of people is a fundamental service
   a. Economics looks at people acquiring services like food and clothing, but security is absolutely fundamental and demanded by people.

Question 2

Explain the assumptions of rationality and what this means for an equilibrium

Answer 2

Actors are assumed to be rational meaning they have a set of options and alternatives and choose the best one that achieves their consistent preferences
o The assumption that there are well defined preferences
o Not much on the origin or content of those preferences - the formation of these preferences are out of the subject for the most part
o Instead, we take the preferences of actors as given
Equilibrium is coordination among the actors so no actor has an incentive to change its position, for example, the equilibrium of supply and demand

Question 3

What do points inside/outside/on the line of the PPF represent and what inputs determine the PPF (look at photo on notes page 3

Answer 3

Points inside the PPF (such as A) represent combinations of civilian and military goods production levels that are possible, but are inefficient; it must mean that we are not using resources wisely, or perhaps not at all. This is called productive inefficiency, compared to allocative efficiency (or Pareto) which occurs when it’s not possible to improve one individual’s well-being without hurting the others.
Points on the line (such as B) are possible and 4 efficient; the economy is operating at capacity, efficiently, and we cannot get more civilian goods without reducing military goods production, or vice versa.
Points like C are better than B, but are not attainable for this economy given its amount of productive resources and level of technology.
Also assume that the production depends on capital (K) and labour (L)- so C = f(Lc, Kc)
M = g(Mc, Kc)

Question 4

Explain why the slope is negative on the PPF - and how it resembles the opportunity cost (which is also the marginal rate of transformation)

Answer 4

The slope of the PPF is negative to illustrate that when adding more of one good you lose some of the other
o This is called opportunity cost, basically how much of one good your giving up when adding another good
o Calculated by calculating the increase of the new input (m1 to m2), by looking at the units given up to attain that good (c1 to c2)
The slope, opportunity cost, and marginal rate of transformation are basically the same thing on the PPF

Question 5

What is the marginal rate of substitution on the indifference curve

Answer 5

Marginal rate of substitution is on the indifference curve – representing how much of one good I need to forgo the consumption of another good to leave me indifferent. The marginal rate of transformation is the technology that allows me change production of one good to another good and is shown on the PPF. The MRS must equal the MRT on the graph.

Question 6

What is the indifference curve, why does it slope down, is higher more preferred, what is diminishing marginal utility, and why can’t they cross one another

Answer 6

The indifference curve shows the overall well-being and utility, and the higher along the curve the better the well-being and utility. The indifference or U curve also has the following characteristics:

U curves always slope downwards which means that if I give up some of one good, I need to get more of the other to leave me “indifferent”.

Higher indifference curves are more preferred because the commodities are goods and preferences and transitive, for example, it would be more preferred to have basket a (x=3 and y=4) than basket b (x=4 and y=2). This is on the assumption in economics that more is always better.

These curves tend to have steep slopes at the left (top) and flatter slopes at the right (bottom) illustrating the idea of diminishing utility in consumption. If I am consuming a lot of civilian goods (left, top) then typically I am happy to give up a lot of these for a little bit of military goods (a point up and to the left on a curve), but if I am consuming very little civilian goods and lots of military goods (lower right), to reduce civilian goods further I would need to be given a lot of military goods to compensate for a small decline in civilian goods consumption. The principle of diminishing marginal utility is clearer if you think of combinations of goods like beer and pizza, coffee and donuts, etc.
§ Example, on point a on the curve to b you give up 2 units of Y to get 1 unit of X. If you move from point a to c you would give up 3 units of Y to get 3 units of X
§ The marginal rate of substation, between X and Y at any given point is the absolute value of the slope of the indifference curve at the same point - we can think of the MRS as how much the consumer is willing to give up of Y per added unit of X. So we know the subjective value of X in terms of Y, at a point where there 4 Y and 1 X, we can say that the value of a unit of X is equivalent to 4 Y.
§ Again though the MRS has a diminishing subjective value, with more and more consumption of X, we may begin to value Y higher

o These curves cannot cross one another, because it would violate the principle that more is preferred to less – the point is that the indifference curve is a consumption bundle at the points along the curve represent the other consumption combinations that would leave me “indifferent”

Utility or indifference curves further from the origin are preferred to those closer to the origin (marked 0).

Question 7

Explain trade specialization, how it affects the PPF, and indifference curve, and how it relates to opportunity cost and comparative advantage (refer to picture on page 5)

Answer 7

The tradeoff in the previous PPF is internal, meaning this an autarky where there’s no trade, but let’s assume that the opportunity cost of producing military goods was lower in the country than on the world market
Producing one unit of m costs one unit of c in the country
Producing one unit of m costs two unit of c in the world
Therefore it would specialize in m
For that, the country would specialize in the good they have a lower opportunity cost in, export m, and then import the remaining c that they gave up by producing m

With international trade, the country can improve its welfare. Let’s say that relative to the rest of the world, this country is relatively worse at producing civilian goods. To get a few extra units of civilian goods it needs to give up quite a few military goods, so the domestic price line PD is 6 quite flat. For the rest of the world, the price line is steeper (PW) because at the margin the resources removed from military production would produce more units of food than is the case domestically for the country. In this case, the country could move production from B to P, and then trade along the Pw line to consume at point T, taking advantage of international pries and trading opportunities to export Mexp amount of guns and import Cimp amount of butter. This process allows the country to consume on indifference curve UH, which is clearly preferred to indifference curve UB. This is one diagrammatic exposition of the benefits of international trade. However, you can also see that removing trading opportunities through war would reduce welfare. This effect is referred to in the text as the “disruption effect”

Therefore, trade allows the country to obtain a higher indifference curve, or a higher level of well-being and utility - this specialization is called the comparative advantage

Question 8

Economic costs of conflict: the diversion of resources, explain how it affects the PPF and indifference curve (graph on page 7)

Answer 8

The diversion of resources into the military because of a conflict causes a movement along the curve which reflects that more military goods are being produced at the expense of civilian goods. Increasing military production, and decreasing civilian goods production, if done efficiently (i.e. remaining on the PPF) leads to a production choice of something like W, and by definition being on utility curve U2 means lower welfare than the previous U1 at point B. Socially, however, for W to be the preferred point of production, war must cause a change in the country’s social preferences to favour guns, so the utility curves would have to shift to something like Uw. Technically W is still efficient in the sense that there is no feasible Pareto improvement that is possible, i.e. the economy is on the PPF, and more of one good necessarily means less of the other.

In addition, technically I cannot compare U1 and Uw, as these are different preference patterns. However, logically, if war has shaped social preferences to look like Uw by imposing some kind of psychological constraint or military imperative, then logically U1 is better than Uw because the latter is. In some sense, forces by the imperative of war, while the former reflects social choices unconstrained by war, though it is an interesting point of debate. You can also think that in moving from B to W the economy may suffer some period of inefficiency, operating within the PPF as production processes switch over and new skills have to be learned. One way of potentially illustrating this effect is to consider the transition path from B to W marked with the purple line.

Question 9

Economic costs of war: the destruction of people and property (graph on page 7)

Answer 9

The destruction of people and property, along with the displacement of people with fewer workers in the economy, the PPF shrinks inwards showing now a decreased capacity to produce goods. In the case of resource destruction, the economy’s PPF contracts from PPFB to PPFw, the economy moves from B to W and clearly the society is worse off in terms of welfare when compared to the pre-war situation.

Question 10

Economic costs of conflict: Disruption of trade

Answer 10

Disruption of trade - with conflict more countries will not trade with the conflicted country, so the PPF will start to look as if the country is in an autarky, which will decrease the indifference curve and lower overall production

Question 11

Military spending and economic growth: explain crowding out, crowding in, and the growth spinoff effect (also consider counterpoints for each argument)

Answer 11

Crowding out: let’s assume that higher investment in the civilian sector would lead to better machines and factories so improving capital and causing larger stock prices next year leading to a higher PPF - in this case, producing more military goods will be associated with crowding out or a decrease of growth because that money that could’ve been spent on investment is being used elsewhere

Crowding in: let’s assume that the country is experiencing a recession and has underutilized production, then an increase in military production could increase the wages of those workers and lead them to spend more in the civilian sector, so thus increased military spending could lead to higher production in both the military and civilian sector
o Counterpoint: we see echoes of this argument today in terms of announcements that cuts in defence spending will be bad for the economy. That does not mean that war is good, though, even if military spending can stimulate an economy.
o While it is true that defence spending can have an expansionary fiscal effect and thus assist in economic recovery from a low point on the business cycle, so would spending on schools or hospitals. It is important, therefore, to keep in mind the ultimate utility of the expenditures: are we better off having more bombers and tanks or more teachers and operating rooms?
o The Vietnam War was a good reminder to many people in the West that war is not good for the economy (Melman, 1972). The macroeconomic effects on the US economy were huge (higher inflation, larger trade deficits, exchange rate problems, increased government budget deficits and public debt) and the microeconomic costs were also substantial (distorted labour markets, concentrated market structures, procurement problems, regulatory failure) let alone the human costs of battle deaths. And this is to say nothing of the war’s effects on Vietnam, which were simply devastating.

Growth spinoff: greater military spending can possibly lead to growth spinoffs in such as increases in education (providing education to soldiers) or advances in technology, then these positive benefits cross over to other sectors and cause the PPF to shift outwards having a more spread out curve reaching production levels that would have not been possible with the previous capital and labour inputs
Counterpoint: This is also true, but it avoids the question of whether such research and development would have been more beneficial had it been directed to civilian needs first. Of course, the diversion of useful resources into military research and arming is only one cost. Much higher are the costs of actual war, which entails death and destruction of often appalling proportions. There is the enormous damage and suffering from military and civilian deaths, the destruction of buildings, infrastructure, goods, assets, the environment, and social structures. These costs are enormous and are profoundly difficult to measure or even comprehend.

Question 12

Use the graph on page 10. to explain changes in the PPF due to crowding out, crowding in, and growth spin-offs

Answer 12

The PPF can also be used to illustrate possible effects on growth, including crowding out of productive investment, crowding in of aggregate expenditure (as in a recession, when operating within the PPF) and potential spin-off effects of investment in military technology. In the diagram below, these possible competing forces can be represented by smaller outward shifts of the PPF (to PPF2) or larger shifts outward (PPF3). The black arrows illustrate what might happen when military expenditures have a positive effect on future economic growth, for example through increased research and development (R&D). More military spending (lower right black arrow) leads to a greater expansion in the PPF (to PPF3) than when there is less military spending (upper left black arrow, to PPF2).

When military expenditures crowd out productive investment or more productive R&D, future production options decline and the blue arrows illustrate the relative effects of different production combinations. Finally, there could be a positive effect of military spending on aggregate expenditure, moving the economy from an inefficient point D inside the PPF to a point closer to or on the PPF; this was the argument about rearmament in the interwar period. As noted earlier, though, it is unclear why military spending would be superior to civilian goods expenditure in increasing aggregate demand.

Question 13

Explain the demand and supply curve, and why they shift

Answer 13

The D curve shows at any given price the corresponding quantity demanded, holding preferences, incomes, and other prices fixed
o Negative slope due to the law of demand, in which price and quantity are inveresely related - higher price, lower quantity and vice-versa
The S curve shows at any given price the corresponding quantity supplied, holding technology and input prices fixed
Positive slope due to law of supply, which price and quantity are directly related - higher price, higher quantity
If one of the things we hold constant changes the entire curve shifts
If cereal is a normal good than a rise in income will cause a rise in demand causing a shift to the right, showing that any given price consumers are willing to buy more quantity
An increase in the price of a substitute good will cause the demand curve to shift to the right, as demand will increase - demand to the left if a decrease in substitute price
Increase in a complement good will decrease demand and shift to the left
Technological improvement will shift supply curve to the right
If input prices increases then costs will be higher and supply will decrease, making it shift to the left

Question 14

taxonomy of goods, rival versus nonrival, excludable versus nonexcludable

Answer 14

Goods are classified as rival or non-rival:
o Rival good is if one person’s consumption of a unit precludes another person’s consumption of the same unit
Goods are classified as excludable or nonexcludable
Goods are excludable if you can exclude others from its consumption
Rival and excludable: private goods, such as cereal and medicine
Rival and nonexcludable: common-resource good, such as fish in open water
Nonrival and excluduable: club good, such as properiteray website, satellite radio
Nonrival nonexcludable: public good, anti-missile defence system
A goods type is determined by its characteristics and not by the sector that employs it private versus public
Free ride: because public goods are nonrival and nonexcludable each consumer has the inventive to free ride, that is, to share in the consumption of the public good but not in the cost
Free riding leaves producers in the private sector with no incentive to provide the good
Consider common resrouce goods such as water flowing across borders, they are rival because ones consumption prevents the other, but nonexcludable because it flows to different areas, this potentially leads to violent disputes over the dvision of the water, due in large part because of the nonexcludability of the good

Question 15

Explain pareto efficiency, pareto dominates and dominated (also answer table on page 13)

Answer 15

A Pareto efficient equilibrium is defined as a distribution of resources in which no person can be made better off without making someone else worse off (weak Pareto efficiency makes one person better off but no one worse off; strong Pareto efficiency; all agents are strictly better off). It is not a particularly strict condition, and it includes many resource distribution configurations that may be considered undesirable for other reasons.
· For example, if there are two people and 10 dollars to be divided between them, then any division of that ten dollars that sums up to ten would be Pareto efficient. For example, 5 dollars for both people would be Pareto efficient, but so too would 10 dollars for one person and none for the other.
· A distribution “A” Pareto dominates (is Pareto superior to) distribution “B” if it makes at least one person better off than under B, while making nobody worse off.

The reason why 3, 5, and 7 are pareto efficient is because one or more of the actors in that scenario would reject leaving because it would make them worse off
Some questions to consider is total output of different scenarios and whether a transfer is enforceable, and what the default scenario is
When a scenario is pareto dominated then it is pareto inefficient, a scenario is pareto efficient when it’s not pareto dominated

Question 16

The conundrum of the course explained through economics, pareto efficiency, and rational choice theory

Answer 16

The important dimension of conflict, of course, is that it destroys resources or, at the minimum, diverts them towards destructive ends that do nothing to contribute to improving human material welfare. Even worse, for many people it results in the what is arguably the ultimate welfare- diminishing consequence – death. As a simple example, if the ten dollars were to be divided through a process of war, we may end up with a division of 3 dollars each, with four dollars having been wasted. Such an outcome would violate the principle of Pareto efficiency from an ex ante (i.e. pre-war) perspective.
· The problem of dividing 10 units of a good when war leads to waste presents the central but simple conundrum that we examine in this course. If war destroys four of the units, leaving only 6, and we know that distribution of the pre-war amount (say 5 each) is Pareto superior to a division of what remains after the war (say 3 each), then why would we select the latter? Even if the war was a “winner-take all” outcome, with the winner getting all the remaining 6 and the loser getting nothing, that division would be Pareto inefficient (it would be Pareto dominated) by a no-war division of 7 for the winner and 3 for the loser, or 8 and 2, or 9 and 1 or (weakly) even 10 and 0.
· Economics does the same: income or wealth is an objective because it is defined as such, though economists find it more appealing because wealth can be linked to our ability to consume, and consumption is what economists traditionally assume motivates people from a fundamental perspective. For economists, then, power is only potentially useful if it allows us to consume more: the ultimate goal is consumption. The starting assumption, which you may or may not accept, is a core foundational assumption of economics: individuals prefer to consume more rather than consume less. Consumption, not power, is the presumed goal. In this sense, then, we are in the realm of economics.

Question 17

Rational choice model: preferences are complete and transitive

Answer 17

Preferences:

Preferences over alternatives are complete and transitive
Complete: when comparing alternative baskets or options they can decide whether they prefer one option over the other, and whether they’re indifferent to certain options
Transivity: comparisons of this sort are consistent with one another. For example, if someone preferes a to b, and b to c, then we could assume that they prefer a to c

Question 18

Explain utility functions

Answer 18

In models of consumer behaviour rationality is expressed through the idea of maximizing a “utility” function subject to constraints. This utility function expresses the value of different combinations of consumption activities to a consumer, who can then rank these in a manner consistent with the formal mathematical properties mentioned previously. These utility functions can reflect “known” opportunities when information is perfect or risk is absent. With risky outcomes (e.g. outcome of a war) we typically appeal to “expected utility” approaches that use rules of probability theory to identify the expected value of risky choices. In fact, Bueno de Mesquita (1985) uses an expected utility framework to model war, though there are problems in the model due to violations of sensible probability rules. We will examine risk, expected value, and related alternative approaches later in the course
· A utility function can be though of as a rule according to which baskets on higher indifference curves are assigned higher numbers, where these numbers are called utilities
· The function is U = xy, whereby it assigns a utility equal to the product of the respective quantities of goods X and Y
· When indifference curves are the same there utility will be same for example there U will all be 4
· When indifference curves are higher there utility will be higher for example there U will be 12
· If the consumers however had different preferences then we would need to change the utility function. If they value X more than Y, then if the good more preferred is on the horizontal axes then it the curve will be steeper, if its on the vertical axes it will be less steeper - the function will also change to U = x2y – with the exponent showing the higher subjective valuation of X in terms of Y

Question 19

Example: Terrorist targeting choices and the substitution principle

Answer 19

Assume that the average cost to the terrorist organization of training and equipping personnel to attack political targets Pp is the same as civilian targets Pc
· Budget constraints = Pp + Pc = I
· Steeper indifference curves would indicate a greater willingness to engage in attacks against pol (horizontal) while flatter indifference curves would imply a greater taste for civ (vertical)
· More curvature on the indifference curve implies a lower degree of substitutability between Pol and Civ, while less curvature implies a higher degree of substitutability
· Let’s say governments put more restricitons on organizations to carry out political attacks, this will raise the price of political attacks, this can either result in the two:
o Either the organization due to low substitutability pays the higher price of political targets by reducing expenditures on civilian targets and paying more for political attacks, therefore the decrease in political attacks is small – this is because they have a fixed budget
o However, if there is a higher degree of substitutability, what happens is the organization spends less on political targets because of the higher price and uses that freed up money to spend more on civilian targets – as a result the decrease in political attacks is large but there is an increase in civilian attacks
§ The more responsive the terrorist organization is to the increased price, the more likely it will increase attacks on civilians

Question 20

The direct and indirect method for calculating the costs of war

Answer 20

The direct cost approach focuses on cases studies that examine the budgetary and financial data measuring government expenditures related to a specific war (e.g. Stiglitz and Bilmes, 2006, 2012)
§ The direct cost approach focuses on:
§ (a) Deaths and injuries (physical and psychological). These costs are difficult to calculate since it requires putting a dollar value on life. However repugnant that sounds, we do it every day (at least implicitly). There are several methodologies used for calculating the “value of life” or of injuries (willingness to pay studies, wage differentials for jobs with risks etc.). Recent estimates from the United States use values ranging from US$ 3 million to US$10 million. (Should all lives be valued equally?)
§ (b) Destruction of physical property (replacement cost? Market value?)
§ (c) Costs of war materiel and salaries (budgetary cost, or “opportunity” cost)
§ (d) Future costs (pensions, landmine clearance etc.). Future cost calculations are sensitive to the 10 choice of “discount” (or ‘interest”) rate.

2. The indirect approach looks at a number of broader effects of war, and are often associated with large-sample or small-sample methodologies for building a counter-factual of what an economy and society would look like if a war had not occurred.
   § The indirect costs include population displacement • reduced production due to violence or its threat • reduced trade due to violence or its threat • lower current and future physical investment • reduction in educational opportunities • brain drain (that is, emigration of educated work force) • reduced tourism from abroad • other macroeconomic effects (inflation, further unemployment, reduced economic growth) • overall welfare costs

Question 21

rationality and aggregate behaviour the condorcet paradox

Answer 21

How can individual (and collective) preferences be aggregated into a community or national preference? In a sense this idea of a “national will” is a very liberal conception, for it suggests that state preferences reflect (or should reflect?) the preferences of its inhabitants, or at least of non-state actors. In the PPF analysis in the previous section, we simply assumed the presence of an “aggregate” utility or indifference curve. In reality, the theory underlying the construction of these aggregate utility curves is quite complex

· Teddy prefers A over B and B over C. Dane prefers B over C and C over A. Coleen prefers C over A and A over B. Let’s say the voting rule is majority: there is no clear choice on a simultaneous vote. Let’s say that the voting rule is to vote each alternative against another in pairs: A versus B, B versus C, and A versus C. Again, no clear choice emerges. This is the Condorcet paradox in which individuals with transitive preference orderings do not generate a transitive aggregate preference ordering.

Question 22

Explain Arrow’s impossibility theorem and what are the 6 conditions

Answer 22

Arrow’s Impossibility Theorem
o shows that we cannot guarantee that any institutional arrangement will lead to a consistent translation of well-behaved individual preferences into correspondingly well-behaved group preferences

1. Completeness: any two outcomes can be compared
2. Transitive: if A is preferred to B and B to C, then A is preferred to C.
3. Pareto principle: if everyone prefers A to B, then A is preferred to B in the aggregate ordering.
4. Independence of Irrelevant Alternatives: If a choice is removed, then the others’ order should not change: If candidate A ranks ahead of candidate B, candidate A should still be ahead of candidate B, even if a third candidate, candidate C, is removed from participation.
5. Unrestricted Domain: Voting must account for all individual preferences
6. Non-dictatorship; No person can always get their way in deciding the group’s preference.

Arrow’s theorem indicates that if the conditions cited above in this article i.e. Non-dictatorship, Pareto efficiency, independence of irrelevant alternatives, unrestricted domain, and social ordering are to be part of the decision making criteria then it is impossible to formulate a social ordering on a problem such as indicated above without violating one of the following conditions

Question 23

difficulties with aggregate preferences - public goods and externalities

Answer 23

There are lots of problems with generating aggregate level preferences. In cases of public goods it is difficult to get people to reveal their true preferences about how much of a public good should be provided if their payment depends in part on their response. Free rider problems emerge.

· The aggregation problem may also be an obstacle to solving externality problems such as pollution. Externalities emerge in cases where the social value (cost of benefit) of an activity differs from its private value. So, for example, a polluter may derive great benefit from dumping waste into a river, making it a useful private activity for them. Society may not like such an activity. Coase indicates that under conditions of perfect information, an enforcement mechanism for well-defined property rights, and zero transactions costs, an optimal solution will emerge. Arrow’s theorem suggests that one of the important transactions costs will be in defining a social welfare function to define the optimal level of pollution.

Question 24

Under what conditions does aggregate level preferences work at the collective level - median voter theorem

Answer 24

These difficulties does not mean that rational choice based models end up in a free-for-all at the aggregate level. There are preference structures that can satisfy Arrow’s 6 criteria under certain restrictive assumptions. An example might arise when there are “single-peak” preference orderings that also form the basis of the Median Voter theorem
o This is if we assume that 50% of the population is on one side while the other 50% are on the other side so it meets all the six requirements
o The theorem applies best to cases of two parties and simple electoral issues and helps to explain why parties often tend to compete in the middle ground on similar platforms. Note that the circumstances are restrictive, though, and cannot easily be extended to multiple-dimension votes, or multiple parties. Thus, translating individual preferences to the collective level works and thrives in certain conditions while it doesn’t in others.

Question 25

critique to rationality and economic approaches to conflict,

Answer 25

Amartya Sen criticizes rationality as economists use it as not adequately incorporating morals, commitment, altruism, and other important behavioural patterns, which severs the link between preference and choice, or between welfare and behaviour. For example, Sen doubts that people are always dishonest when it is to their advantage, and thus problems of preference revelation in public goods problems is not very important.

1. While rationality may not be a universal approach to understanding all behaviour, it is nonetheless a valuable approach. In the same way as liberalism or realism, it provides a lens with which to view a problem. Asking how a given event or outcome may be based on “rationalist” principles can be very powerful. Why did some person do something that appears “irrational”? Is it due to constraints on information? An inability to commit to a policy? The overwhelming force of their opponent? Part of a mixed strategy? You will thus be led to consider a range of preferences and, more importantly, constraints, in trying to explain some phenomenon. Rarely will much insight be gained by starting from the principle that the person (or key people) involved in a decision or action is simply irrational.
2. It is not clear that Sen’s critique cannot be incorporated into rationality. Many objections to rationality lay in the emphasis on egoistic, self-interested behaviour. But altruism and other forms of preference orderings may also be permitted.
3. In international affairs frameworks, self-interest or state-interest may, in fact, be a much more reasonable assumption than in individual affairs. Realists certainly believe this to be so.
   Cramer provides a different sort of critique than people like Sen, and applies it directly to the question of rational models of conflict and war. Cramer sounds a cautionary note regarding the value of using “economic” models to analyze conflict. Effectively,

Cramer resents and rejects any attempt to analyze conflict outside of its specific (social) circumstances by appealing to any sort of common theoretical foundation of behaviour. In reviewing the economics of conflict literature he finds no compelling argument, and argues that all models effectively present people as consumption maximizers without social conscience, and as voluntary rather than coerced actors. This line of analysis is certainly worth keeping in mind since people do have social consciences, and many are clearly behaving under coercion.

Cramer poses a serious challenge to the models, suggesting that they place economic concerns at the centre of conflict whereas its true place might be, at best, as an indirect mechanism that helps translate social grievance into violent action. This is not an argument to be dismissed lightly. Do social grievances give rise to economic conditions that facilitate violence, as Cramer holds? Or do economic fundamentals drive social interests that generate conflict? Both are plausible, but proving one over the other is difficult. Such questions are at the heart of the “greed and grievance” literature (e.g. Collier and Hoeffler, 2004), which prompted Cramer’s article.

Of equal interest is Cramer’s suggestion that the empirical work used to test economic models of conflict are faulty, especially in its reliance on proxy variables to measure key phenomena. Cramer is undeniably correct: much of the empirical work suffers from poor model building, equation specification, and faulty data. However, it is also true that other approaches suffer either from similar problems, or rely so extensively on context-specific conditions that no generalizable rule emerges with which to analyze conflicts as a class of problems. Nor can any lessons drawn from one conflict be applied to another with any pretense of methodological support.

Cramer’s third key objection is the emphasis on the individual in economics, at the expense of the social. This is a more awkward argument to assess. Cramer seems to be suggesting that social forces are derived from more than economic interest, a plausible but decidedly non- Marxist argument (the source of much of Cramer’s intellectual foundation). What is clearly lacking in neo-classical economics, Cramer argues, is that there is no foundation of social relations or social constructs that rely on the basic assumption of methodological individualism (the argument that all action derives from individual choice).