Market-provided national defense: reply to Newhard.

Author:Leeson, Peter T.
  1. Introduction

    In a previous issue of this journal, we argued that the free-rider problem associated with the private provision of national defense does not, ipso facto, imply the inefficiency of privately provided national defense, as is conventionally asserted (Leeson, Coyne, and Duncan 2014). National offense also suffers from a free-rider problem in that one nation's aggressive activities generate nonexcludable benefits for other nations. Because the efficient level of defense depends on the level of offense a society confronts, whether or not markets underprovide defense depends on the severity of the free-rider problem in its production, and thus defense's underprovision, relative to the severity of the free-rider problem in the production of offense, and thus offense's underprovision. The conventionally asserted inefficiency of privately provided national defense is therefore not a logical implication of defense's free-rider problem, but rather an (unanswered) empirical question.

    In a comment on our paper, Newhard (2016) challenges this argument. He agrees with our motivating point that both national defense and national offense suffer from a free-rider problem, but contends that the former must always be more severe than the latter because private contributions to defense depend on the level of offense individuals expect to confront. In short, when expected offense is lower (due to free riding), contributions to defense are lower, too, leaving defense undersupplied even relative to undersupplied offense.

  2. Reasonable Assumptions

    Newhard's comment highlights an important and unstated, but entirely reasonable, assumption of our analysis: at least some part of individuals' private contributions to national defense is independent of the level of offense individuals expect to face. If such contributions do not decline lockstep with reductions in expected levels of offense, the relative severity of free riding in the production of defense versus offense, and thus the efficiency or inefficiency of market-provided national defense, remains a question that can be answered only on a case-by-case basis.

    Why would private individuals' contributions to national defense remain the same, or fall less than proportionately, in the face of a lower expected level of offense? For the same reason that private individuals' contributions to restaurant servers overwhelmingly remain the same, or at least do not fall proportionately, whether individuals are...

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