by Jurgen Brauer, January 2004
Copyright: J. Brauer. No reproduction without permission.

By comparing ideals of how markets should work with how markets actually work, economists discover why and how real-world markets deviate from the ideal. For example, monopoly is seen as a deviation from the ideal of competition. In the absence of competition a monopolist obtains pricing power in the market. Economists then study just why competition is absent and how monopoly power arose so that one may gain insight into how the situation may be rectified. This is similar to the way physicians study illness: as a deviation from how an ideal health body should function.

Economists have discovered that among the prerequisites for well-working markets are the presence of property rights, enforceable contracts, the avoidance of breakdowns in competition, the absence of information failures, the absence of spill-over effects from one market to another, the absence of conditions that create incomplete markets or lead to completely missing markets, and the absence of so-called public goods.

Let us apply some of these notions to understand why war is so common in certain places in the world and, correspondingly, why there is so little peace.

Of the people affected by fighting who has an enforceable right to peace? Which court would take the case, and who would enforce its ruling? Knowing this, those who would break the peace have all the incentive to keep making war.

If I had a legal right to peace, and if I could sue you to leave me be, and if the legal system enforced a ruling that you leave me be, then peace would readily obtain. If a stalker hounds me, and if the system worked well, eventually I would get satisfaction and peace of mind. But who of the people affected by the fighting in central Africa or central Asia has an enforceable right to peace? Which court would take the case, and who would enforce its ruling? And if the parties at war come to a pre-trial settlement and concluded a peace treaty or contract, again, who would enforce it? Little wonder that peace negotiations break down so often. Many wars are interminable not because people do not desperately wish for peace but because no one can enforce it. Knowing this, those who would break the peace have all the incentive to keep going.

In war, almost never is there competition in the economist's sense of there being many buyers and many sellers in the market place. Instead, wars are fought among few parties, often only two, sometimes a handful. Increasing the number of credible players in the conflict would keep all of them on their toes and would allow substantial room for bargaining, and for coalition and alliance formation. When there are but a few players, the stakes increase and both sides are under internal pressure not to give in. Even as Israeli and Palestinian people desperately desire peace, their leaders are locked in an apparently interminable squabble. The same holds in Kashmir. The same was true in Angola between the government and the rebels, until the latter's leader was shot. Now, we have monopoly rule in Angola.

Violent conflict and war also persist when information is absent. In ordinary markets, information is critical to decision-making by buyers and sellers. In fact, in the financial markets there exist side-markets that deal in information about financial markets. Sadly, in war information is often the first victim, supplemented by deliberate falsehoods and misinformation. Moreover, outsiders have no incentive to collect intelligence information because there are only one or two potential buyers so that the market is thin and because, as soon as the war is concluded, the information becomes worthless and so does the investment that was needed to collect it in the first place. Lack of timely, accurate, and plentiful information – and the capacity to analyze it – thus inhibits peace and fosters uncertainty and war.

Peace is what economists call a public good, a good from whose enjoyment no one can be feasibly excluded even if one fails to pay for the good. For example, a radio signal is available to anyone who has a receiver. Many people simultaneously can enjoy a program without contributing to its cost of provision. Unless a clever way can be found to finance the cost of provision, many desirable goods or services will thus not be provided. (In the case of radio, advertisers are willing to bear some of the cost of radio programming because they can be excluded from advertising on the program. Alternatively, a state may decide to coerce a tax payment to fund state provision.) But if there is war in Sierra Leone, who will fund a peace from which no one can be excluded? There are few incentives for anyone to contribute to the cost of peacekeeping. The consequence is that peace is short in supply even as demand for peace surely is huge.