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Models of alliances: Internalizing externalities and financing

Author

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  • Kevin Siqueira
  • Todd Sandler

Abstract

This paper extends the joint product model of military alliances to apply to the new strategic doctrine adopted by NATO in the 1990s. In particular, a choice must be made between protecting one's own territory and pooling forces for an alliancewide rapid reaction force. This new model accounts for a host of externalities and their implications for burden sharing, full financing, and allocative efficiency. The Pigouvian taxes that adjust for force thinning and attack deflection are shown to finance optimal border-protecting forces under a variety of circumstances. Second-best considerations arise owing to the pure publicness of rapid reaction forces. The ideal toll arrangement does not currently characterize NATO financing, nor is it likely to do so.

Suggested Citation

  • Kevin Siqueira & Todd Sandler, 2001. "Models of alliances: Internalizing externalities and financing," Defence and Peace Economics, Taylor & Francis Journals, vol. 12(3), pages 249-270.
    • Handle: RePEc:taf:defpea:v:12:y:2001:i:3:p:249-270
    DOI: 10.1080/10430710108404987
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    Citations

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    Cited by:

    1. Sandler, Todd, 2001. "On financing global and international public goods," Policy Research Working Paper Series 2638, The World Bank.
    2. Tony Addison & Mark McGillivray & Matthew Odedokun, 2004. "Donor Funding of Multilateral Aid Agencies: Determining Factors and Revealed Burden Sharing," The World Economy, Wiley Blackwell, vol. 27(2), pages 173-191, February.
    3. Chen Jiawei & Sacks Michael, 2018. "Going Along or Going Independent? A Dynamic Analysis of Nonprofit Alliances," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(2), pages 1-20, April.

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