Economic activity in the shadow of conflict

Appropriation possibilities significantly alter economic fundamentals in a production and exchange economy. This is the primary lesson of our model, which combines Ricardian trade and the potential for predator/prey behavior. The model shows how conflict can be subdued by mutual gains from trade, but at a resource cost that modifies the exchange itself On the other hand, it identifies conditions wherein appropriation incentives are so strong that specialized production and trade are precluded altogether The model also reveals a new way to think about and measure the gains from trade. (JEL C72, D51, D74, F10).