Threat Perceptions and the Valuation of Defence Policy Instruments

National defence is a quintessential public good which generates welfare but does not have a market price to be used for its valuation. This study uses non-market valuation, namely a discrete choice experiment, to enhance the understanding of how individuals' perceptions of threat influence their valuation of defense policy instruments. The analysis employs an integrated choice and latent variable model in which perception of foreign, domestic and economic threat are included as latent variables and interacted with estimates of marginal willingness to pay (WTP) for the different policy instruments. Results show that perceptions of foreign threat are associated with higher WTP for defence policy instruments. Effect sizes are substantial with WTP varying by a factor of 2 to 4 between respondents with the weakest and strongest threat perceptions. In contrast, a strong perception of domestic threats correlates with low or even zero WTP for defence policy instruments. No clear effect can be found for perceived economic threat. The validity of the assessment of threat perceptions is supported by the analysis of systematic variation of threat perception with demographic characteristics. The policy-relevance of this link between psychological antedecents and valuation of national defence is discussed.