Abstract
In 1978 and again in 1985, the NATO ministers pledged to increase their real military expenditures by 3 per cent per year. The purpose of this paper is to demonstrate that fixed-percentage pledges of this kind are unworkable policies since they do not account for an ally’s income cycles, its incentive to rely (or to free ride) on other allies’ military expenditures, or an ally’s contingencies or future threats. A secondary, but related, purpose here is to re-examine what the true determinants of defence burdens are. To accomplish this task, we formulate a reduced-form demand equation for an ally’s defence expenditures, and then present ordinary-least-squares estimates of this equation for nine NATO allies. The estimated coefficients of these equations are used to forecast real growth in defence expenditures. These predicted growth rates are in significant contrast with the fixed 3-per-cent pledges. Except for the USA, no ally is predicted to come near to their agreed-upon pledges.
The author gratefully acknowledges the help of James C. Murdoch who jointly developed the statistical analysis presented in this paper.
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Notes and References
On public goods and free riding, see the following: Olson, M. and Zeckhauser, R., ‘An Economic Theory of Alliances’, Review of Economics and Statistics, vol. 48, (August 1966) pp. 266–79;
Olson, M., The Logic of Collective Action (Cambridge, Massachusetts: Harvard University, 1965);
Sandler, T., ‘Impurity of Defense: An Application to the Economic Theory of Alliances’, Kyklos, vol. 30 (Fasc. 3, 1977) pp. 443–60;
Sandler, T. and Cauley, J., ‘On the Economic Theory of Alliances’, Journal of Conflict Resolution, vol. 19 (June 1975) pp. 330–48;
Sandler, T. and Forbes, J. F., ‘Burden Sharing, Strategy, and the Design of NATO’, Economic Inquiry, vol. 18, (July 1980) pp. 425–44;
Sandler, T. and Murdoch, J. C., ‘Defense Burdens and Prospects for the Northern European Allies’, in Denoon, D. (ed.) Constraints on Strategy: The Economics of Western Security (New York: Pergamon, 1986);
Murdoch, J. C. and Sandler, T., ‘A Theoretical and Empirical Analysis of NATO’, Journal of Conflict Resolution, vol. 26, (June 1982) pp. 199–235;
and Murdoch, J. C. and Sandler, T., ‘Complementarity, Free Riding, and the Military Expenditures of NATO Allies’, Journal of Public Economics, vol. 25 (November 1984) pp. 83–101.
See Sandler and Forbes (see note 1) and Sandler, T. and Culyer, A. J., ‘Joint Products and Multijurisdictional Spillovers’, Quarterly Journal of Economics, vol. 97, (November 1982) pp. 707–16.
See the discussion of this doctrine in Murdoch and Sandler (1984, see note 1), pp. 90–1; Sandler and Murdoch (see note 1), footnote 10; and Ball, D., Déja Vu: The Return to Counterforce in the Nixon Administration (Los Angeles: California Seminar on Arms Control and Foreign Policy, 1975).
International Institute for Strategic Studies, The Military Balance: 1984–1985 (Oxford: Alden Press, 1984).
Price can be dropped from the equation without biasing our results, provided that the price of military activities has inflated at the same general rate as that of non-defence activities. Evidence to this effect is provided by Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook (New York: Crane, Kussak, 1983) chap. 8.
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© 1987 International Economic Association
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Sandler, T. (1987). NATO Burden-sharing: Rules or Reality?. In: Schmidt, C., Blackaby, F. (eds) Peace, Defence and Economic Analysis. International Economic Association Series. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-18898-7_17
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DOI: https://doi.org/10.1007/978-1-349-18898-7_17
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