Empirical studies have found ethic cleavages to play an important role in the occurrence of civil conflict. Surprisingly, theoretical research on ethnic conflict has been very scarce. In the present contribution a theoretical model of reputation and ethnic conflict is built. Depending on the information structure and the reputation cost of defecting, economic interaction can either result in (peaceful) trade or in appropriative conflict. Ethnic divisions affect the reputation cost of defection and therefore influence the conflict risk. It is shown what respective effects ethnic fractionalisation, polarisation and segregation have on the risk of conflict.