Marginal utility, cooperation and free-riding: Strategies for supplying a public good

The collective-goods approach to the study of alliances has been used to explain why smaller allies spend less on defense as a percentage of GNP than do large allies. Missing from much of that analysis is a description or test of the dynamic process by which allies respond to changes in the defense effort of the largest state. This paper outlines two basic models: The Cournot process inherent in the Olson-Zeckhauser “economic theory of alliances”; and a model that has “smart” states cooperating to maintain the integrity of the group. The models are applied to the North Atlantic Treaty Organization and other American alliances. It is found that while most allies “free-ride” in the sense that they spend less on defense as a perc age of GNP than does the United States, they “cooperate” with the U.S. to supply deterrence. The paper concludes that the collective good supplied by the alliance can more accurately be characterized as “commitment” than”deterrence”.