Defense economics is the study of both defense and peace issues, using the tools of modern economics. It covers a range of issues, including nuclear proliferation, resource disputes, environmental externalities, ethnic conflicts, and terrorism, all of which present grave threats to peace and security. In a post-Cold War world military and political dangers are probably more numerous and more complex than ever before. In response, policy makers and researchers are increasingly applying economic techniques and insights to improve our understanding of the issues. The economics of defense provides a comprehensive evaluation of the literature in an up-to-date, unified survey. The authors apply both microeconomic and macroeconomic methods of analysis, including static optimization, growth theory, dynamic optimization, comparative statics, game theory, and econometrics. The book includes chapters on the study of arms races, alliances and burden sharing, economic warfare, the arms trade, weapon procurement policies, defense and development, defense industries, arms control agreements, disarmament, and conversion. The authors take stock of what has been done in the field to date, and pinpoint areas needing further analysis and empirical work. This is the first book to integrate and synthesize this broad literature. It will be essential reading for students, practitioners, and researchers in the field of defense economics.