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Economic Theory of Alliances: Sixty Years Later

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  • Todd Sandler
  • Justin George

Abstract

The main purpose of this retrospective of the economic theory of alliances is to characterize three basic paradigms: purely public deterrence, spatial connectivity, and joint products. For each model, allies’ military expenditure (ME) responds differently to the aggregate ME of the other allies, known as defense spillins, thereby resulting in diverse burden sharing, allocative implications, membership composition, and institutional recommendations. The underlying theoretical models determine reduced-form equations for allies’ interdependent defense demands. We examine how changes in strategic doctrines, weapons technology, enemy threats, and membership composition affected NATO burden sharing and its allocative efficiency over time. Generally, changes that increase the share of excludable defense benefits possess a better prognosis for burden sharing and allocative efficiency. Principles and insights from the economic theory of alliances are related to defense demands at the operational level and for non-NATO alliances.

Suggested Citation

  • Todd Sandler & Justin George, 2026. "Economic Theory of Alliances: Sixty Years Later," Journal of Conflict Resolution, Peace Science Society (International), vol. 70(2-3), pages 525-555, March.
    • Handle: RePEc:sae:jocore:v:70:y:2026:i:2-3:p:525-555
    DOI: 10.1177/00220027251359626
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    References listed on IDEAS

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    1. Minoru Okamura, 2000. "Simultaneous provision of defense and aid: Empirical evidence from the united states-Japan alliance," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(1), pages 73-91.
    2. Sandler,Todd & Hartley,Keith, 1999. "The Political Economy of NATO," Cambridge Books, Cambridge University Press, number 9780521630931.
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    7. Todd Sandler & James C. Murdoch, 1990. "Nash-Cournot or Lindahl Behavior?: An Empirical Test for the NATO Allies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(4), pages 875-894.
    8. Wukki Kim & Todd Sandler & Hirofumi Shimizu, 2024. "An expanded investigation of alliance security free riding," Global Policy, London School of Economics and Political Science, vol. 15(4), pages 570-582, September.
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