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The Economics of Defense.

This book surveys many of the major contributions, methods and ideas of the defense and peace economics literature. The book draws upon Sandler and Hartley's comparative research strengths in the field. An excellent balance is struck between data, mathematical models, and discussion. Topics include alliances, arms races, arms control arms control

Limitation of the development, testing, production, deployment, proliferation, or use of weapons through international agreements. Arms control did not arise in international diplomacy until the first Hague Convention (1899).
, weapons trade, procurement, defense industry, economic impacts of defense spending, terrorism and guerrilla warfare guerrilla warfare (gərĭl`ə) [Span.,=little war], fighting by groups of irregular troops (guerrillas) within areas occupied by the enemy. . The book could be used in graduate or upper-level undergraduate courses on the economics of peace and war. Economists entering the field will find the book to be an excellent source for what has been accomplished and for research areas that need the most attention. For specialists already in the field, the book serves as an up-to-date unified source of the academic literature on defense and peace economics.

After an opening chapter that defines the scope of the field, an excellent review of the economic theory of alliances is presented. The literature was motivated by Olson and Zeckhauser's [3] pure public good model of alliance burden-sharing. The model generates a number of testable predictions including the classic burden-sharing hypothesis: large, wealthy allies shoulder the burden for small, poorer allies. The prediction was borne out using 1964 data on the North Atlantic Treaty Organization North Atlantic Treaty Organization (NATO), established under the North Atlantic Treaty (Apr. 4, 1949) by Belgium, Canada, Denmark, France, Great Britain, Iceland, Italy, Luxembourg, the Netherlands, Norway, Portugal, and the United States.  (NATO NATO: see North Atlantic Treaty Organization.
 in full North Atlantic Treaty Organization

International military alliance created to defend western Europe against a possible Soviet invasion.
). By the 1970s, the burden-sharing hypothesis no longer seemed to apply to NATO. To explain the empirical shortcoming short·com·ing  
A deficiency; a flaw.


a fault or weakness

Noun 1.
, researchers developed more general alliance models that allowed military expenditures to provide multiple benefits that vary in their degree of publicness among allies. The new models provided fresh hypotheses about alliance behavior. The authors present the theoretical and empirical development of the economics of alliances in a rigorous, accessible, and thorough manner. Their summary table of twenty-three empirical studies Empirical studies in social sciences are when the research ends are based on evidence and not just theory. This is done to comply with the scientific method that asserts the objective discovery of knowledge based on verifiable facts of evidence.  on alliances is notable for its clarity and usefulness.

A chapter on arms races covers all of the core models: Prisoner's Dilemma prisoner's dilemma

Imaginary situation employed in game theory. One version is as follows. Two prisoners are accused of a crime. If one confesses and the other does not, the one who confesses will be released immediately and the other will spend 20 years in prison.
, Richardson's equations, McGuire's static optimization model, the Intriligator-Brito model, Wolfson's economic warfare economic warfare

Use of economic measures by governments engaged in international conflict. These may include export and import controls, shipping controls, trade agreements with neutral nations, and so on.
, Brito's dynamic optimization model, and Simaan and Cruz's differential game approach. Major extensions to the core models are presented as well as selected empirical studies of arms rivalries.

The procurement chapter highlights the principal-agent problem In political science and economics, the principal-agent problem treats the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent.  and builds upon Scherer's [4] classic text. Approaches to defense contracting and procurement cost estimation procedures are reviewed. Empirical studies of costs, learning curves, regulation, and competition draw upon U.S. and U.K. data.

The chapter on the economics of the defense industrial base (DIB (1) (Directory Information Base) Also called "white pages," a database of names in an X.500 system.

(2) (Device Independent B
) focuses on the supply side of the market for military equipment. Theoretically and empirically, this is one of the least developed fields in defense and peace economics. The authors reveal the deficiencies in the literature. The field is ripe for serious attention by specialists in industrial organization.

Some government specialists in procurement, military manpower, and defense industry may wish for more than the book offers in these areas. The authors emphasize and specialize in the academic literature, though they include some government sources. An insurmountable hurdle for many academics is that some important information on defense industry, military manpower, procurement, and the arms trade is classified.

A chapter on the relationship between defense spending and economic growth in less-developed countries Less-developed countries (LDCs)

Also known as emerging markets. Countries who's per capita GDP is below a World Bank-determined level.
 begins with Emile Benoit's [1; 2] provocative contributions. Benoit's empirical results suggested a net positive association between defense spending and economic growth for forty-four LDC's. The findings generated a flood of research that Sandler and Hartley place into two broad categories: studies that found fault with Benoit's methodology, and studies that investigate the relationship between economic growth and defense spending using an alternative methodology. The authors discover the following pattern: (1) models that include demand side effects Side effects

Effects of a proposed project on other parts of the firm.
, where defense can crowd out investment, found that defense spending had a negative impact on growth; (2) most supply-side models found a small positive defense impact or none at all. The chapter concludes with an outstanding summary table of empirical studies.

The arms control and disarmament One of the major efforts to preserve international peace and security in the twenty-first century has been to control or limit the number of weapons and the ways in which weapons can be used. Two different means to achieve this goal have been disarmament and arms control.  chapter is based on the paradigm that disarmament is an investment process involving short-run costs in return for long-run benefits. The short-run costs include unemployment and other resource dislocations. Long-run benefits involve the reallocation of resources The provision of logistic resources by the military forces of one nation from those deemed "made available" under the terms incorporated in appropriate NATO documents, to the military forces of another nation or nations as directed by the appropriate military authority.  to civilian goods. The authors survey the literature related to disarmament investment scenarios and other issues related to arms control (e.g., substitution effects, stability, verification, uncertainty, and lobbying pressures). One idea that the book could have addressed more fully is the assumption of cost-less arms reduction that permeates theoretical models of arms races and arms control. Cost-less arms reduction, of course, flies in the face of reality as Sandler and Hartley show. The destruction of nuclear, chemical, and conventional weapons and the storage of toxic weapons materials is very costly. Theoretical models of arms control need to explicitly incorporate resource constraints on arms reduction.

A chapter on non-conventional conflict surveys rational-actor models and empirical studies of revolutions, insurrections, guerrilla warfare, and terrorism. These topics are rife with strategic interactions, free riding, preference manipulation, preference suppression, and bandwagon effects. Economists still have much to contribute to this literature.

The book contains useful chapters on the demand for military goods, military manpower, industrial and alliance policies, the arms trade, and defense conversion. A concluding chapter summarizes major findings and offers a rich menu of research agendas.

Defense and peace economics is relatively unknown in the economics profession. Very few graduate or undergraduate programs offer courses in the field. It is likely that many economists do not consider conflict to be a subject matter of economics. Sandler and Hartley's book demolishes that view. The book's thorough and natural application of economics to peace and war, and its accessibility, suggest a unique potential: non-specialists could use the book to develop a graduate or undergraduate course in the economics of peace, conflict, and defense. If you are looking for Looking for

In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with.
 a new field with teaching and research challenges, give the book a try. For the few economists who have staked their careers in defense and peace economics, the book is an excellent summary and an encouragement to continue working in the field.

Charles H. Anderton College of the Holy Cross The College of the Holy Cross is an exclusively undergraduate Roman Catholic liberal arts college located in Worcester, Massachusetts, USA. Holy Cross is the oldest Roman Catholic college in New England and one of the oldest in the United States.  


1. Benoit, E., Defense and Economic Growth in Developing Countries. Boston: D.C. Heath, 1973.

2. -----, "Growth and Defense in Developing Countries." Economic Development and Cultural Change Economic Development and Cultural Change is an academic journal published by the University of Chicago Press and edited at the University of Southern California's Department of Economics. , 1973 26(2), 271-87.

3. Olson, M. and Zeckhauser, R., "An Economic Theory of Alliances." Review of Economics and Statistics, 1966 48(3), 266-79.

4. Scherer, F. The Weapons Acquisition Process: The Economic Incentives. Boston: Harvard University Press The Harvard University Press is a publishing house, a division of Harvard University, that is highly respected in academic publishing. It was established on January 13, 1913. In 2005, it published 220 new titles. , 1964.
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Author:Anderton, Charles H.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jan 1, 1997
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