For many people, in many places, violent or potentially violent conflict is part of the human experience. Headline stories of civil strife, insurgency, nation-state warfare, terrorism, and the proliferation of weapons of mass destruction document the prevalence of conflict as a basic fact of life. Less dramatic indications of conflict include deadbolt locks, gated residential communities, electronic security systems, and handgun sales, to name a few. At first blush, it might appear that economics has little if anything to say about life's harder side. Economics textbooks typically restrict their attention to the peaceful behavior of consumers, producers, and governments in the marketplace. Thus, it might seem that potential and actual violence over resources, goods, and political power lie outside the domain of economics. But this is a misperception, as is demonstrated by the rapidly developing field of conflict economics.

What Is Conflict Economics?

Conflict economics has two defining characteristics. First, it maintains that the concepts, principles, and methods of economics can be fruitfully applied to the study of conflict activities. Thus, diverse phenomena like war, arms races, alliances, and terrorism are analyzed and understood as outcomes of purposeful choices responsive to changes in underlying incentives. As just one example, economics explains how consumers shift purchases from one good (say orange juice) toward another (say grape juice) when the price of one rises relative to that of the other.