A Note on the Market Provision of National Defense

Market-provided national defense famously suffers from a free-rider problem. According to conventional wisdom, markets must therefore underprovide defense. We argue that conventional wisdom is wrong. The free-rider problem that plagues national defense also plagues national offense, leading markets to underprovide the latter as well. Because national offense is the raison d’etre of national defense, whether or not markets provide the efficient level of 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. Where the free-rider problem confronted in producing national offense is more severe than that confronted in producing national defense, markets produce the efficient level of national defense.

Find article at The Journal of Private Enterprise.