Security gradient and national defense – the optimal choice between a draft army and a professional army

The earlier work on the optimal design of the national security has focused on the opportunity cost of the draft in terms of foregone human capital formation. The current paper introduces the national security into the welfare analysis missing from the earlier work. This creates a trade-off between the private goods and the security as a public good in the social cost–benefit analysis. There are three major results. First, and arising from the intergenerational interaction, it is optimal to introduce a pay to the young generation when in duty even by resorting to a distortive tax. Second, when optimizing the size of the army, the optimal choice between the draft army and the professional army depends on the risk class of the country. A security gradient arises. Third, the choice is linked to the size and the quality of the reserve generated by the two approaches.