Fostering cooperation: the conflict-reducing effects of inter-village competition for government transfers

We examine the effect of inter-group competition on within-group violent conflict in Indonesia. Using a triple-differences design, we find that higher competition for national government transfers between villages reduces within-village conflict. These effects persist regardless of the competition’s outcome, are stronger in ethnically fractionalized and segregated villages, and are accompanied by higher attendance in village meetings. Our results are consistent with external competition favoring participation and cooperation within otherwise divided communities, suggesting that economic incentives to compete with out-groups combined with forms of civic engagement can be important mechanisms to reduce violence within communities.