In post-conflict environments, the challenge is rarely ideological; it is structural. Governments operate under an imbalance: the political cost of taking a destabilizing step is immediate and visible to domestic audiences, while the economic benefits of cooperation are slow, delayed, and often diffuse. This creates a predictable trap – peace processes advance on paper, yet remain vulnerable to shocks because nothing imposes continuous accountability on decision-makers.
This article proposes a different architecture: one that prices peace the way markets already price carbon, sovereign risk, or institutional credibility. Drawing on regional trade data, institutional economics, and incentive-design theory, it argues that a Peace Dividend Index, paired with Peace Bonds, can translate political behavior into measurable economic signals – making stability financially rewarding and political backsliding costly in real time.
Post-conflict settings rarely lack agreements; they lack mechanisms that sustain cooperation over time. The benefits of stability – higher trade, increased investment, lower risk premiums – accumulate gradually and require a consistent policy trajectory. Political incentives, however, operate on short cycles where restraint brings little visibility, while domestic pressures are immediate. This mismatch produces an incentive gap: long-term regional gains depend on short-term political choices that are not economically priced.
This pattern is well illustrated in the South Caucasus. Independent economic assessments estimate that closed borders, foregone trade, and suppressed investment flows cost Armenia and Azerbaijan 2-3% of GDP per year.[i] Without a mechanism that assigns economic value to stability, peace remains vulnerable – not because actors seek conflict, but because cooperation has no continuous indicator that rewards consistency or exposes regression.
The Peace Dividend Index applies a familiar logic to post-conflict stability: real-world variables condensed into a single interpretable score. It aggregates trends in cross-border trade, transit volumes, open transport routes, foreign direct investment, political-risk metrics, and cross-border business activity. This serves three functions: First, transparency – all stakeholders observe the same data-driven trend rather than competing narratives; Second, benchmarking – governments can track performance across time or against regional baselines; Third, depoliticized evaluation – citizens, investors, and international actors respond to actual behavior rather than rhetoric. The Index becomes a real-time barometer of stability.
A Peace Dividend Index becomes meaningful, however, only when paired with a financial instrument that converts those measurements into concrete incentives. Peace Bonds can provide this link. Their structure is flexible: they may be sovereign, jointly issued, or channeled through a regional fund, and could involve the European Union, the Trump-led U.S. administration (as seen in the TRIPP framework), or multilateral institutions. The essential element is the incentive logic.
When the Peace Dividend Index rises – reflecting uninterrupted transit, predictable government behavior, increasing trade volumes, and reduced perceived risk – the interest rate on the bond declines, granting access to cheaper capital when cooperation strengthens. When the Index falls, the rate automatically rises, imposing an immediate financial cost for instability. The mechanism also carries a reputational dimension. A drop in the Index would not only increase yields; it would affect sovereign ratings, widen spreads, and signal political risk to investors and the public. Political cost emerges not through external pressure, but through market reaction. Proceeds from Peace Bonds would be directed toward projects that reinforce mutually beneficial interdependence: modern customs systems, cross-border logistics, digital trade platforms, agricultural value chains, SME cooperation, and academic or youth exchanges. In this way, the instrument strengthens both the material and institutional foundations of long-term stability.
The theoretical foundations for pricing peace draw on established work in political economy and institutional design. Robert Axelrod’s classic analysis of repeated cooperation demonstrates that actors sustain peaceful behavior when long-term gains – the “shadow of the future” – outweigh short-term temptations to defect.[ii] This aligns with the insight of Douglass North and Barry Weingast, who show that political agreements endure only when institutions impose credible commitment constraints on governments, linking today’s behavior to tomorrow’s economic consequences.[iii] The sovereign-risk literature reinforces this logic. Carmen Reinhart and Kenneth Rogoff demonstrate that instability – political or fiscal – is rapidly priced into sovereign borrowing costs and spreads[iv], while Torbjörn Becker and Paolo Mauro show how shocks to credibility and governance produce immediate penalties in creditworthiness.[v] Finally, the mechanism-design framework pioneered by Leonid Hurwicz, Eric Maskin, and Roger Myerson – awarded the 2007 Nobel Prize – provides the conceptual basis for aligning incentives so that self-interested political actions generate collectively desirable outcomes.[vi] Together, these strands support the central proposition: stability can be priced, measured, and reinforced through institutional and financial mechanisms.
These theoretical insights are not merely abstract: comparable incentive-compatible mechanisms already operate in global development finance, where returns are explicitly linked to verified progress. Global finance already uses results-based instruments in which returns depend on cooperative behavior. For instance, the Refugee Impact Bond, implemented in Jordan, links investor repayment to measurable livelihood gains for refugees.[vii] Similarly, social and development impact bonds supported by UNDP rely on outcomes-based financing that rewards verified progress and penalizes failure.[viii]
The South Caucasus does not need more declarations; it needs incentives stronger than statements. A Peace Dividend Index provides the missing measurement: a continuous, data-driven signal of stability. Peace Bonds provide the enforcement: lowering the cost of capital when cooperation strengthens and raising it when instability appears. Together, they convert peace from a diplomatic aspiration into an economic asset with material consequences. By pricing stability and exposing backsliding in real time, this model can institutionalize predictability, protect hard-won gains from political swings, and make cooperation not only desirable, but the rational long-term strategy for every actor in the region.
Albert Hayrapetyan, Areg Kochinyan
[i] https://berlin-economics.com/wp-content/uploads/2021/11/The-economic-effect-of-a-resolution-of-the-Nagorno-Karabakh-conflict.pdf
[ii] https://books.google.am/books/about/The_Evolution_of_Cooperation.html?id=NJZBCGbNs98C&redir_esc=y
[iii] https://www.cambridge.org/core/journals/journal-of-economic-history/article/abs/constitutions-and-commitment-the-evolution-of-institutions-governing-public-choice-in-seventeenthcentury-england/2E0D2B2D3490BE5C556D836ACB096362
[iv] https://www.nber.org/papers/w15795
[v] https://www.imf.org/external/pubs/ft/wp/2006/wp06172.pdf
[vi] https://www.nobelprize.org/prizes/economic-sciences/2007/summary/
[vii] https://www.unesco.org/fr/dtc-financing-toolkit/refugee-impact-bond
[viii] https://www.undp.org/blog/navigating-complexities-social-impact-bonds-sd
