Peace economics is a branch of conflict economics and focuses on the design of the sociosphere's political, economic, and cultural institutions and their interacting policies and actions with the goal of preventing, mitigating, or resolving violent conflict within and between societies. This violent conflict could be of any type and could involve either latent or actual violence. Recognizing the cost of violence, peace economics focuses on the benefits of (re)constructing societies with a view toward achieving irreversible, stable peace. Along with approaches drawn from other areas of scholarship, peace economics forms part of peace science, an evolving part of peace and conflict studies.

Despite overlaps, peace economics is distinct from war, military, defense, and security economics, all of which are branches of conflict economics. A key difference between peace economics and these related fields is that peace economics emphasizes the study of the presence of or conditions for peace, as distinct from studying the absence or presence of conflict, violence, war, or insecurity.

History of economic theories of peace

Peace economics has also been defined as "the use of economics to understand the causes and effects of violent conflict in the international system and the ways that conflict can be avoided, managed, or resolved." This restricts the subject matter to the international realm and leaves out the study of peace itself. Walter Isard defines peace economics as "generally concerned with: (1) resolution, management or reduction of conflict in the economic sphere, or among behaving units in their economic activity; (2) the use of economic measures and policy to cope with and control conflicts whether economic or not; and (3) the impact of conflict on the economic behavior and welfare of firms, consumers organizations, government and society." The notion of violence is absent and peace itself is not studied, but the level of analysis can be other than conflict between states. In a context restricted to international trade, another author writes that "Peace economics studies ways to eradicate and control conflict as well as to assess conflict's impact on society." The notion of violence is not explicit and the benefits of peace are seen only inasmuch as a reduction of conflict may improve opportunities for expanded global trade. Others make a distinction between "productive" and "unproductive" or "appropriative" economic activities their starting point of analysis in peace economics.

Economics Nobelist Jan Tinbergen defines peace economics as "economic science used for [a purpose that] prohibits [war] as an instrument of settling conflicts between nations and [to organize] the world in a way that warfare is punished". Violence is addressed only at the level of sovereigns, not dealing with civil war or debilitating organized or individual-level criminal violence. In related work, Tinbergen writes about a world order that would inhibit violence and permit peace between and among states. In his view, this requires a "world government", a sentiment not now commonly agreed among economists.

A number of peace economists are explicit about the use of particular explanatory schema to be applied in peace economics, e.g., rational choice theory. In contrast, the main definition of peace economics is open to a variety of approaches. Virtually all authors acknowledge that peace economics is part of both positive economics and normative economics. While for most contemporary economists, work in positive economics may lead them to lay out a descriptive array or evaluation of policy choices from which one that is most valued is recommended to or chosen by policy makers, in peace economics, in contrast, it is the norm of peace to be achieved that inspires the search for a system design that can reliably deliver on the desired norm.

Peace economics is built on general systems theory exemplified by the work of Kenneth Boulding. Earth may be viewed as a self-regulating (homeostatic) system, consisting of natural and social subsystems. In each, deviation from a set goal is self-corrected through feedback loops. Homeostatic systems are commonly observed in nature, such as in ecology and in the physiology of organisms (e.g., self-regulation of population sizes, self-regulation of body heat). The systems concept has been adopted in the engineering sciences, for example in designing thermostats. The user sets a desired goal state (temperature), the instrument measures the actual state, and for a deviation of sufficient degree a corrective action is taken (heating or cooling).

Relatively new is the insight that social systems designed to achieve certain purposes (e.g., the retirement or pension system) imply a choice architecture that may permit failed or failing social systems to persist. Similarly, choice architecture may facilitate the (re)design of institutions aimed at securing beneficial social outcomes such as peace. This is social engineering applied to the problem of peace (peace engineering) and overlaps with ideas of mechanism design (reverse game theory) in which a solution is stipulated a priori and the structure of the game that would bring about the desired outcome is inferred. In this way, system design links back to normative economics.