Risk, production and conflict when utilities are as if certain

Abstract

The article analyses a production and conflict model of risk, supplementing the common rent seeking analysis. Agents differ in attitudes toward risk, productive efficiencies, fighting efficiencies and resources for production versus fighting. A fighting decisiveness parameter determines distribution of utilities. Skaperdas' (1991) analysis of conflict and risk attitudes is generalised from a symmetric to an asymmetric risk function, from two agents to many agents of two kinds, and the fraction of risk seekers is endogenised. Specific functional forms of the utility function and production function are used. The amount of fighting increases in the amount of risk aversion, contrary to received rent seeking theory, but consistently with much experience. Surprisingly, higher production costs or lower fighting costs for risk seekers cause higher utility for risk seekers, contrary to the received theory of higher utility to risk avoiders. We show how the first agent taking on risk benefits, given that the other agents remain risk averse, whereas risk seeking by all agents is the worst scenario.