11 - Contests, Institutions, Wars, and Economic Success

Summary

Chapter 11 examines the role of institutions. Specifically, it explores how institutions can be undermined by rent-seeking activities that bias decision-making toward suboptimal alternatives and consume valuable resources. Furthermore, this erosion of institutions leads to a decline, or at best stagnation, in the standard of living of the society by diverting a significant portion of productive forces. The chapter presents two models of war in which the armed conflict is produced by resource inequality (the book also acknowledges other types of causes of war like ethnic, religious, etc.) and offers recommendations on how to prevent them. Specifically, a one-sided transfer of resources from wealthy to less developed countries may provide incentives for peace even in the absence of enforceable agreements.