DP13965 Hierarchy of Membership and Burden Sharing in a Military Alliance

Author(s): Shlomo Weber, Yuval Weber, Hans Wiesmeth
Publication Date: August 2019
Keyword(s): Alliances, Burden Sharing, free riding, multi-stage Penrose-Stackelberg equilibrium, NATO, Public Goods
JEL(s): C72, D62, D74, H41
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13965

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.