Commitment, Threat Perceptions, and Expenditures in a Defense Alliance

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Abstract
The economic theory of alliances is based on public goods theory. This theory has been modified to include defense resources with mixed public/private benefits. This paper develops a defense alliance model that distinguishes public from private benefits based on the degree to which defense resources are committed to the alliance. Resources fully committed to the alliance (e.g., U.S. troops stationed abroad) provide public benefits. Partially committed resources (e.g., U.S.-based NATO reinforcements) provide mixed public/private benefits. Finally, resources committed to uses outside the alliance (e.g., internal security and unrelated international interests) provide mostly private benefits. Threat perceptions are also used in explaining alliance defense expenditures. This model provides plausible explanations for recent defense expenditure trends. It also suggests important policy implications. In particular, free riding is an inherent characteristic of defense alliances and aggregate defense expenditure data cannot measure the distribution of the defense burden.

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