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Industry Self-Governance and National Security: On the Private Control of Dual Use Technologies

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  • von Engelhardt, Sebastian
  • Maurer, Stephen

Abstract

Private sector firms frequently sell dual use products that can be used to develop either civilian goods or weapons of mass destruction. The global character of these markets makes traditional regulation and treaty solutions difficult. Some existing initiatives by manufacturers have established private regulations that are stronger than official US policy. This paper explores the economic conditions that make such strong, industry-wide agreements stable. We assume two risks due to the dual use nature. First, upstream firms face legal liability if their products lead to a disaster. Second, a disaster may produce regulatory backlash, i.e. excessive government regulation that make downstream production prohibitive costly. We find that regulatory backlash is never an adequate substitute for perfect (i.e. full) liability and even makes the situation worse. Second, industry regulation enforced by downstream firms and optimal regulation converge when the downstream firms have strong market power. Next, we analyze when and why large downstream firms are able to force their preference for high levels of regulation on upstream suppliers. Finally we show that upstream incumbents may be able to deter entry in adopting a high regulatory standard.

Suggested Citation

  • von Engelhardt, Sebastian & Maurer, Stephen, 2012. "Industry Self-Governance and National Security: On the Private Control of Dual Use Technologies," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 66052, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc12:66052
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    References listed on IDEAS

    as
    1. Na Li Dawson & Kathleen Segerson, 2008. "Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets," Land Economics, University of Wisconsin Press, vol. 84(1), pages 97-114.
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    3. Khanna Madhu & Widyawati Diah, 2011. "Fostering Regulatory Compliance: The Role of Environmental Self-Auditing and Audit Policies," Review of Law & Economics, De Gruyter, vol. 7(1), pages 125-160, May.
    4. Shiell, Alan & Chapman, Simon, 2000. "The inertia of self-regulation: a game-theoretic approach to reducing passive smoking in restaurants," Social Science & Medicine, Elsevier, vol. 51(7), pages 1111-1119, October.
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    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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