This chapter addresses the challenge of endogeneity, testing Master Hypothesis 4. Some critics of the grievance-based literature argue that endogeneity may undermine the link between exclusion and conflict, and by implication the opposite one linking inclusion to peace. Endogeneity derives from the fact that the governments' decisions to include or exclude could be motivated by the anticipation of conflict. We counter this threat to inference by articulating a causal pathway that explains ethnic groups' access to power independently of conflict. Focusing on postcolonial states, we exploit differences in colonial empires' strategies of rule to model which ethnic groups were represented in government at the time of independence. This identification strategy allows for estimating the exogenous effect of inclusiveness on conflict. We find strong and systematic evidence that - at least for the post-colonial world - inclusion in governmental power sharing systematically reduces the likelihood that ethnic groups become involved in ethnic civil war. Our instrumental-variable analysis confirms Master Hypothesis 4, because we have found that governments tend to co-opt potential rebels rather than excluding them.

In this chapter, we explore an actor-centric approach that emphasizes strategic interaction and offers an alternative to IV-estimation to pursue the evaluation of Master Hypothesis 4. We proceed in two steps. First, we introduce a simple formal model that captures the most important strategic dimension and highlights what is crucial for reverse causation: The conditions under which governments are likely to share power depending on the level of threat posed by a domestic challenger. As we have shown in Chapters 3 and 6, previous research on the origins of power sharing highlights either government incentives for the co-optation of threatening challengers through power sharing arrangement or risk-diversion by means of exclusion so as to avoid perilous infighting. Rather than favoring either consideration at the expense of the other, the model presented here unifies these mechanisms and shows that both have their place - depending on the challenger's level of threat as well as the government's ability to provide credible guarantees. In a second step, the chapter provides a novel statistical estimator that closely mirrors the strategic logic of the theoretical model, but also accounts for the selection on unobservables. Applied to data at the level of ethnic groups around the globe since World War II, the model offers strong evidence that governments do indeed strategically use power sharing as a way of managing the risk of conflict. In short, power sharing is systematically endogenous to conflict as suggested by Master Hypothesis 4. Moreover, the results reaffirm that power sharing systematically causes peace, and that naïve analyses that do not account for endogeneity tend to underestimate this effect.