On sharing NATO defence burdens in the 1990s and beyond

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Fiscal Studiesa joint product model in which defence yields multiple outputs whose publicnessvaries. In particular, defence activities can produce deterrence (a pure publicbenefit), damage limitation or protection for times of conflict (an impure publicbenefit) and ally-specific outputs (private benefits). 8 Defence outputs areimpurely public among allies when the associated benefits are either partially orwholly excludable by the provider, or else partially rival among the allies.Consider conventional forces, deployed along an alliance’s perimeter to keep anopposing side from penetrating its front. Because the actual deployment decisioncan exclude one or more allies, conventional armaments and troops displaypartially excludable benefits. Such forces are subject to a spatial rivalry in theform of ‘force thinning’ as a given army is spread over a longer exposed border.Coalescing troops in one place along an alliance’s border leads to vulnerabilitieselsewhere, and it is these resulting vulnerabilities that imply rivalry inconsumption.Ally-specific benefits occur when a defence activity helps only the providingally and yields no benefit spillovers to others. In large part, the UK efforts tothwart terrorism in Northern Ireland only benefited the UK. The same can besaid of the British forces stationed 12,000 kilometres away in the Falklands, orBritish efforts to expel Argentine troops from the Falklands between 2 April and14 June 1982. The recent build-up of Greek and Turkish forces to protect theirrespective partitions of Cyprus yield largely ally-specific benefits. Unlike publicdefence outputs, private ally-specific benefits motivate an ally to providedefence, since these benefits cannot be derived from another ally’s defenceefforts. Similarly, excludable impurely public defence benefits — say, derivedfrom conventional forces assigned to the ally’s borders — also provideincentives for an ally to contribute.Consider the differences in the mix of outputs and the publicness of benefitsderived from strategic and conventional weapons. By their nature, strategicweapons do not readily lend themselves to producing ally-specific benefits. Suchweapons cannot be used to threaten an insurgency into submission, nor can theybe assigned to thwart terrorism or provide disaster relief. If, moreover, theseforces have sufficient range, they can be deployed almost anywhere with little orno thinning of strength, so that strategic nuclear forces yield primarily alliancewidepurely public benefits. Some ally-specific benefits follow from theprovider’s control of the launch button, whose possession can allow it to extractsome hegemonic concessions (Morrow, 1991). In contrast, conventional forcespossess a large share of ally-specific benefits and impurely public benefits.While it is true that formidable conventional forces deter an enemy, they canalso further many ally-specific interests. Their deployment during a conflict isimpurely public owing to force thinning. In essence, the extent of publicness isreflected in the ratio of excludable benefits (i.e. ally-specific and damage-8 Ally-specific benefits are private among allies but public within an ally.302
Sharing NATO Defence Burdenslimiting benefits) to total benefits received from a defence activity’s outputs.This ratio depends on the reigning strategic doctrine, weapon technology,perceived threats and alliance composition. For example, curbing the threatposed by the proliferation of nuclear forces, which is part of NATO’s new crisismanagementdoctrine, yields purely public benefits to NATO allies and anynation in harm’s way from such weapons.The implications of the joint product model are at variance with those of thepurely public deterrence representation of an alliance. First, a high ratio ofexcludable benefits implies that an ally must support its own defence, regardlessof its economic size, if it is going to be protected. As this ratio increases, theexploitation hypothesis is anticipated to lose its relevancy, so that anydisproportionality between an ally’s size and its defence burden is predicted todecline. Second, the presence of excludable benefits allows markets and clubarrangements to promote preference revelation, thereby achieving a closerequality between marginal benefits and marginal costs. As the ratio ofexcludable benefits approaches one, this equality of margins becomes closer tobeing satisfied, thus implying greater optimality. Free riding can be curtailedwith a sizeable helping of excludable benefits. Third, alliance size restrictionshinge on the thinning of forces; allies with large exposed borders cause morethinning and must contribute more conventional forces to offset this thinningexternality (Sandler, 1977). Because ally-specific benefits are not shared anddeterrence can be shared at zero costs, neither of these types of benefitsdetermines membership size. Fourth, alliance links can be kept loose andunintegrated when the ratio of excludable benefits is large, in so far asinefficiencies are small, calling for little co-operative correction. Fifth, the largeris this ratio, the better is the match between benefits received and defenceburdens, because a payment must be made to acquire the excludable benefits.The location and geographical properties of a prospective ally make adifference for both the desirability of including this ally and the extent of itsbargaining strength if included. A conventional alliance can save costs owing tothe sequestration of interior borders that no longer require protection (Gardner,1995, pp. 401–6; Sandler, 1999). Consider an alliance of three contiguous squarecountries of equal sizes lined up in a row. 9 Suppose that each country’s sides areof unit length costing 1 to protect. If each country provides its own defence, theneach expends 4 in protecting its perimeter from an attack in all directions. If,instead, the countries form an alliance, then only 8 sides need protecting, leadingto a cost saving of 4. The middle country possesses a bargaining advantage,because without its participation there would be no cost savings. Countries withlong exposed borders are less desirable entrants and, if admitted, are at abargaining disadvantage when cost savings from sequestered borders are9 The formation and expansion of NATO was analysed in Sandler (1999) based on cost savings from interiorborders.303
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