The economics of the market for peace negotiations

Every time I get into a taxi, I begin a countdown until the moment when the friendly, chatty, driver will ask me what it is that I do for a living. I am often reluctant to say, “I’m an economist.”

No matter where I am, the first question that always comes back is: “What does an economist do, then? Like, money and stuff?” I haven’t yet found a comprehensible way to explain that I do the kind of economics where money doesn’t appear much, but it’s hard not to feel typecast, anyway. What is true of taxi drivers is, often, true of plenty of others.

It was funny, then, when I sat down to talk with some peace mediators. “What does an economist do, then? Like, money and stuff? You’d love how we finance peace negotiations…”

Unlike taxi drivers, however, the peace mediators were at least partially right. I was suddenly an economist who was interested in money. You see, for an economist, the “market” for peace negotiations seems like an incredibly strange one.

Prima facie, it is not a traditional market where those who demand something pay a going rate to someone willing to supply it. Most conflict parties don’t pay for their own negotiations, after all. And because they don’t, they’d presumably want to consume more negotiation as price goes up, not less. You see, included in that “price” can be nice things, like juicy per diems, comfortable underwear and good single malt. By the same token, those who supply the funds are likely to supply less and less as the demands for fine whisky, generous per diems and designer underpants grow. It is also not a public good, though. Parties can easily be excluded, and especially since funds are not infinite, provision is likely rivalrous. Almost by design, money that goes to one process prohibits funds going to another. Very quickly, it begins to look like a market with an upward sloping demand curve and a downward sloping supply curve.

There are, of course, some situations in (theoretical) economics where such perverse curves arise. On the demand side, there might (or might not) be Giffin Goods. However, a requirement of a Giffin Good is that it is highly highly inferior. That is, demand for that good must strictly decrease as income increases. It is difficult to square this with what we know about peace. Indeed, given how some economists understand the onset of violent conflict, it is more likely war than peace that is highly inferior.

Downward sloping supply curves, too, are possible but are only really supposed to happen in situations when the need for money is incredibly low. The idea of the “market for peace negotiations” being a “non-market orientated” phenomenon has a certain attractiveness. However, it is difficult to square the reality of a world in which internationally mediated peace negotiations are possible with the kinds of primitive societies in which cash isn’t much use.

Indeed, in our research, (somewhat strangely for a modern economists, it seems, based on 50 or so in-depth qualitative interviews), we find little to support the notion that the funding of peace negotiations exists outside of modern understandings of markets.

In fact, if anything, our results err towards the idea that what is demanded and supplied is the peace that negotiations can bring, rather than the finance for the process itself.

In this sense, conflict parties become the suppliers of peace and supply more as the rewards for doing so increase. Those who fund the negotiations become the demanders. All of a sudden, those curves aren’t so perverse anymore.

Yet, it is also a market that is prone to inefficiencies and failures. We find that the allocation of funds is sub-optimal across processes. Some conflicts, offering high rewards, become “darlings” of donors and are overfunded. Others that look intractable or that otherwise offer low anticipated rewards are overlooked. Some processes get more than they need without producing more peace; other processes don’t get enough, producing no peace at all. Within processes, there are productive inefficiencies, too. Just as some conflicts become darlings, so too do some components of processes. The cost of producing peace in this way is greater than it needs to be.

Information is at a premium in this market. Rent seeking is rife, as parties seek to gain private advantages without increasing the overall amount of peace produced. There’s adverse selection, too, or at least, the worry of adverse selection. Moral hazard might be in there, too — after all, a bad faith actor at the table funded by someone else does not bear all the risks or costs of their actions. And, of course, principle agent problems arise as the nature of negotiations almost inherently imply power imbalances between some of the actors at the table.

The funny thing is that the more we looked at this problem as economists, the more convinced we became that the market for peace negotiations looks like many other very real markets. The good news is that economics does not just identify these problems in other markets, but also offers up some intuition on what we can do to overcome the failures and inefficiencies in the market. Counteracting institutions can help to overcome informational asymmetries. The creation of reward structures can overcome misaligned incentives. Collective action problems can be overcome by trusted intermediaries ferrying information around.

Encouragingly, the market for peace negotiations is already doing these things. In recent years, we have seen a rise in international actors seeking to broker peace, acting as counteracting institutions. Professional negotiators and mediators have replaced “elder statesmen” and act as trusted intermediaries. Significant effort is expended defining the peace dividend and the shares of individual parties therein, ensuring meaningful reward systems are in place. Collective forms of funding have arisen, in order to prevent serious principle agent problems, at least on the provision of funding side.

This is not to say that the market clears perfectly nor that it isn’t home to significant waste. Far from it. But the potential damage of these failures has, somewhat, been limited by the evolution of the peace market to deal with its own internal problems.

No interviewee thought, for example, that a negotiation process that had successfully got going was subsequently botched because of insurmountable failures in the receipt of funding or within the funding market. At the same time, this makes the assumption that the market place and its inherent failures are conducive to getting all conflicts that are ripe for intervention to the negotiation stage. This, too, is not the case. More than one interviewee told us about processes that were viable that never got going because of these same kinds of market failure. Given the damage we know violence brings and the gains to be made from peace, the opportunity cost of that is significant.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Vision of Humanity.

Economists on Peace is an editorial collaboration between the Institute for Economics and Peace and Economists for Peace and Security that aims to stimulate global discussion and shared learning on economic aspects of peace and conflict leading to appropriate action for peace, security and the world economy.

Economists for Peace and Security is an international network of economists, set up to establish economics of peace and security as a fundamental part of the academic discipline of economics.

More articles from the author: Reflecting on lessons learned from evaluating peacebuilding project.