Academic journal article Economic Inquiry

Mutual Raiding of Production and the Emergence of Exchange

Academic journal article Economic Inquiry

Mutual Raiding of Production and the Emergence of Exchange

Article excerpt

Joint exchange and raiding can emerge in a world of mutual raiding when the appropriated production is less valuable to the appropriator than to the defender and the defense is not too inferior to attack. The amounts of resources allocated to production and raiding and the amounts of goods exchanged reciprocally are determined endogenously. The model reduces to pure exchange and pure raiding as special cases. Pure exchange emerges when the usability of appropriation is sufficiently low. Pure raiding emerges if the defense is sufficiently inferior to attack. The results of the model are intermediate between the results of the two extreme cases. (JEL C6, C72, D51, D72, D74, F10)

I. INTRODUCTION

In the American Civil War, each side to some extent looted the other. Still, some true reciprocal exchange between the two sides was conducted by blockade runners, whereby the South exported cotton and imported manufactured goods. Varying across time/space, pure market exchange may be supplemented by or grow out of such activities as war, piracy, (1) corruption, (2) extortion, (3) crime, (4) plundering, or theft, referred to as raiding or mutual raiding. Generally, agents (individuals, groups, companies, nations) can meet their consumption needs by exchange of goods in accordance with comparative advantage, or else by attempts at confiscating the other's production, resources, goods, or trade flows. Each route has been the subject of separate study. This article develops a model in which the equilibrium balance between the two ways of acquiring desired goods is determined by the values of various parameters governing the productive and conflictual processes involved.

How can exchange, conducted voluntarily and with mutual advantage, emerge in a world where appropriation and defense through mutual raiding appear to be more natural means of survival? (5) Classical economics describes how agents exchange goods reciprocally, voluntarily, and nonviolently. (6) Political economy describes how agents appropriate and defend one productive resource, without reciprocal exchange. (7) A few authors attempt to integrate production, exchange, and appropriation. (8) This article lets two agents exchange goods reciprocally and raid each other's production mutually. Hausken (2003, 33-36) classifies the 78 possible models (in the exhaustive spirit of Rapoport and Guyer 1966) for how one or several of the five objects--production, resources, consumption goods, exports, and imports--can be set under attack. As is also the case for Rider (1999), Anderton et al. (1999), and Anderton (1999), this article utilizes ratio forms of the contest success function. (9) Reduction to a pure exchange model, presented in section II, or a pure raiding model, occurs by adjusting parameters.

Also assuming raiding of production, Rider (1999) claims that pure exchange is impossible, (10) which is correct when the production is equally valuable to the appropriator and defender. Rider shows that in the absence of pure exchange, it could turn out--and, in fact, it inevitably turns out--that the advantages of diversified consumption achieved by mutual raiding exceeds the wastage of fighting effort. If his result were universal, one would not observe pure exchange in the real world, which in fact we do. Accordingly, this article shows that Rider's (1999) result is not inevitable, even when accepting his assumption that each agent produces only one of the two desired goods.

We believe that the two characteristics "value of appropriation" and "superiority of defense over attack" (11) are realistic and help explain the empirics as well as reciprocal exchange in the real world. (12) Regarding the first characteristic, Grossman and Kim (1995, 1279) present the following argument, which is contrary to most contest models which let appropriated objects be equally valuable to the appropriator and the defender: "We also allow for the possibility that predation is destructive, by which we mean that in any appropriative interaction the predator gains less than the prey loses. …

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