Defence expenditures by countries in allied and adversarial relationships

Abstract

In this paper, the linkage between a country's national security and the defence spending of its allies and adversaries is modeled. In this way, the cost of an arms race between adversaries is introduced into the alliance public good framework of Olson and Zeckhauser. It is shown that, contrary to the Olson‐Zeckhauser presumption, a cooperative treaty to increase defence spending in an alliance may actually make it worse off. Further, even where the treaty makes an alliance better off, ceteris paribus, such treaty making may constitute a form of the prisoner's dilemma for the world as a whole with both sides worse off than in the absence of cooperative treaties.