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International Trade Theory

It is easy enough to define a threshold y* that is sufficient to generate all the effects above. Note that the highest probability of an attack is bounded above by p, the probability of a cross-religious confrontation. If, at this level, it is optimal for an individual to choose the “human protection” technology, then by the first part of observation 1, it is optimal to do so for all lower levels. It is straightforward to see that such a threshold must exist.12 For individuals with incomes that exceed this threshold, the capitalintensive technology may be attractive. If it is attractive both before and after the change in group incomes, then the effect on d will depend on the ratio of w* to y. If w* is a fully human cost and involves the use of fellow group members, it will again be proportional to group means, and previous arguments apply. The ambiguity arises from individuals whose incomes cross the threshold. Figure 3 shows what happens with incomes that rely on the human technology before the change but move into the fixed-cost technology after the change. Panel A shows that it is now possible for there to be a sharp upward jump in defense expenditures.13 The protection function shifts downward, as in panel B, while the attack function ðas beforeÞ shifts upward. The net effect will depend on the relative strengths of these two shifts, and it is ambiguous. The effect on overall attacks will depend on the proportion of individuals who fall below the threshold for which the capital-intensive technology is never used. The more individuals there are in this category, the more likely it is that economic improvement