Violent Rebellions and Criminal States

A legitimate state uses violence to enforce contractual agreements within its territory. Criminal organizations may enforce transactions that are legally restricted or banned, or otherwise ignored by the legitimate state. In this sense, criminal organizations may also function as states. Legitimate states may be threatened by violent rebellions. I model how legitimate states and rebellions may settle conflict by agreeing to share the market for contract adjudication, which effectively turns the rebellion into a criminal state. Empirical evidence suggests this strategy has been a widely-employed response to rebellion during the second half of the 20 century. JEL: D74, F52, H11, K42 ∗ Department of Economics, University of Washington (e-mail: [email protected]). I am grateful to Yoram Barzel for his guidance and to Kristin Johnson for providing the data necessary to test this theory. I owe thanks to audiences at the annual meetings of the Southern Economic Association and the Pacific Conference for Development Economics. ©2009 by Michael Hanlon. All rights reserved.