Working Paper: CEPR ID: DP13965
Authors: Shlomo Weber; Yuval Weber; Hans Wiesmeth
Abstract: he paper introduces a model of military alliance financed through its members’ contributions. The member countries vary on four dimensions: GDP per capita, population, “awareness of the alliance”, and the place in the alliance hierarchy. The latter refers to the situation where some countries can be considered as “leaders” or even “super-leaders” whose contribution decisions determine the response of the “followers”. The interaction between the countries is modeled by means of the Penrose-Stackelberg mechanism that yields a unique equilibrium and identifies the factors that determine the patterns of burden-sharing in an alliance. We then apply our theoretical setting to NATO and conduct an empirical investigation of our model. The paper evaluates the differences in burden sharing along political, military, and economic dimensions, specifically NATO’s goal for member-states to spend 2% of GDP on defense, and demonstrates that alliance “awareness” and place in the alliance hierarchy due to historical factors can explain whether NATO states meet their burden-sharing goal.
Keywords: alliances; public goods; burden sharing; free riding; multistage; Penrose-Stackelberg equilibrium; NATO
JEL Codes: C72; D62; D74; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher awareness of NATO (F53) | Increased military expenditures as a share of GDP (H56) |
| Higher GDP per capita (O57) | Increased military expenditures as a share of GDP (H56) |
| U.S. as superleader (F59) | Influences contributions of leaders and followers (M54) |
| Hierarchical structure within NATO (F53) | Influences contributions of leaders and followers (M54) |
| Greater historical ties and security concerns regarding Russia (F52) | Higher awareness of NATO (F53) |
| Higher awareness of NATO (F53) | Meeting NATO's defense spending target of 2% of GDP (H56) |