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Economics of defense
The economics of defense or defense economics is a subfield of economics, an application of the economic theory to the issues of military defense. It is a relatively new field. An early specialized work in the field is the RAND Corporation report The Economics of Defense in the Nuclear Age by Charles J. Hitch and Roland McKean. It is an economic field that studies the management of government budget and its expenditure during mainly war times, but also during peace times, and its consequences on economic growth. It thus uses macroeconomic and microeconomic tools such as game theory, comparative statistics, growth theory and econometrics. It has strong ties to other subfields of economics such as public finance, economics of industrial organization, international economics, labour economics and growth economics.
The roots of the science can be tracked back to the 1920s when The Political Economy of War by Arthur Cecil Pigou was originally published. A major step forward can be then accredited to Charles J. Hitch and Roland McKean and their work The Economics of Defense in the Nuclear Age from 1960. A great contribution to the subject came in 1975 when the British economist G. Kennedy published his book The Economics of Defence. However, importance of the field grew especially in the late 1980s and early 1990s due to political instability caused by the breakup of the Soviet Union and liberation of Eastern Europe. This resulted in the publication of a complex overview of the current state of the field in 1995 from Todd Sandler and Keith Hartley called The Handbook of Defense Economics.
While the science as such started developing in the 20th century, many of its topics can be found long before then. For example, the first written set of laws called the Code of Hammurabi from the 18th century BC can be considered one of the earliest works dealing with problems and questions of the economics of defense.[citation needed] Similarly, economic aspects of war and military operations are broken down in a great detail in Sun Tzu's The Art of War from the 5th century BC. During the Middle Ages, political institutions emerged and a great step forward was made in military with the invention of devices using gunpowder.
Generally, developments in defense economics reflect current affairs. During the Cold War, the main topics included superpower arms races, establishment of strong and lasting alliances and nuclear weapon research. Afterwards, the focus shifted to conversion opportunities, disarmament and the peace dividend availability. And at the beginning of the new millennium, the research shifted its attention to an increasing number of regional and ethnic conflicts (Africa, Bosnia, Kosovo, Afghanistan, Iraq), international terrorist threats (terrorist attacks on the USA) and weapons of mass destruction. Besides that, much work was dedicated to NATO, the European Union and other alliances that accepted new members and continued with developing new missions, rules and international organizations, an example being the European Security and Defence Policy, which involved the introduction of the European Defence Equipment Market and the European Defence Technological and Industrial Base.
The field revolves around finding the optimal resource allocation among defense and other functions of the government While the primal goal is to find the optimal size of the defense budget with respect to sizes of other budgets managed by the public body, the field also studies the optimization of allocation among specific missions and outputs such as arms control, disarmament, civil defense, sealift, arms conversion, mobilization bases, or weaponry composition. At the same time, different ways these goals can be achieved are analyzed on lower levels. These consist of finding the optimal choice between alternative logistic arrangements, rifles, specialized equipment, contract provisions, base locations and so on. Since the defense management of a country consists of choosing between many substitutes, an analysis of costs and benefits of various options is vital.
Economizing in the economics of defense represents the principle of reallocating available scarce resources such that an output of the greatest possible value is produced. This can be achieved in two ways:
These two are closely intertwined since finding an optimal choice is worthless if institutions lead decision-makers to different choices, just as functioning institutions do not provide much help if an optimal choice is not found. An absence of a widely accepted tool to calculate the change in value when choosing among various options represents a major difficulty in the economics of defense because it makes the identification of the optimal allocation practically impossible. Differences of opinions on security and threat protection topics are common between people.
Although the economics of defense mainly studies microeconomic topics, which involve allocation optimization and optimal choice identification, it also looks into several macroeconomic topics, which focus on the impact of defense expenditures on various macroeconomic variables such as economic growth, gross domestic product and employment. One branch of defense economics takes an institutional approach to analyze defense resource allocations. This approach aims to maximize the effectiveness and the efficiency of military performance, and provide measures targeted at improving the management of armies. This area also studies critical infrastructures such as road, rail, water, health, electricity, and cybersecurity networks, to improve their resilience against intentional attacks.
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Economics of defense
The economics of defense or defense economics is a subfield of economics, an application of the economic theory to the issues of military defense. It is a relatively new field. An early specialized work in the field is the RAND Corporation report The Economics of Defense in the Nuclear Age by Charles J. Hitch and Roland McKean. It is an economic field that studies the management of government budget and its expenditure during mainly war times, but also during peace times, and its consequences on economic growth. It thus uses macroeconomic and microeconomic tools such as game theory, comparative statistics, growth theory and econometrics. It has strong ties to other subfields of economics such as public finance, economics of industrial organization, international economics, labour economics and growth economics.
The roots of the science can be tracked back to the 1920s when The Political Economy of War by Arthur Cecil Pigou was originally published. A major step forward can be then accredited to Charles J. Hitch and Roland McKean and their work The Economics of Defense in the Nuclear Age from 1960. A great contribution to the subject came in 1975 when the British economist G. Kennedy published his book The Economics of Defence. However, importance of the field grew especially in the late 1980s and early 1990s due to political instability caused by the breakup of the Soviet Union and liberation of Eastern Europe. This resulted in the publication of a complex overview of the current state of the field in 1995 from Todd Sandler and Keith Hartley called The Handbook of Defense Economics.
While the science as such started developing in the 20th century, many of its topics can be found long before then. For example, the first written set of laws called the Code of Hammurabi from the 18th century BC can be considered one of the earliest works dealing with problems and questions of the economics of defense.[citation needed] Similarly, economic aspects of war and military operations are broken down in a great detail in Sun Tzu's The Art of War from the 5th century BC. During the Middle Ages, political institutions emerged and a great step forward was made in military with the invention of devices using gunpowder.
Generally, developments in defense economics reflect current affairs. During the Cold War, the main topics included superpower arms races, establishment of strong and lasting alliances and nuclear weapon research. Afterwards, the focus shifted to conversion opportunities, disarmament and the peace dividend availability. And at the beginning of the new millennium, the research shifted its attention to an increasing number of regional and ethnic conflicts (Africa, Bosnia, Kosovo, Afghanistan, Iraq), international terrorist threats (terrorist attacks on the USA) and weapons of mass destruction. Besides that, much work was dedicated to NATO, the European Union and other alliances that accepted new members and continued with developing new missions, rules and international organizations, an example being the European Security and Defence Policy, which involved the introduction of the European Defence Equipment Market and the European Defence Technological and Industrial Base.
The field revolves around finding the optimal resource allocation among defense and other functions of the government While the primal goal is to find the optimal size of the defense budget with respect to sizes of other budgets managed by the public body, the field also studies the optimization of allocation among specific missions and outputs such as arms control, disarmament, civil defense, sealift, arms conversion, mobilization bases, or weaponry composition. At the same time, different ways these goals can be achieved are analyzed on lower levels. These consist of finding the optimal choice between alternative logistic arrangements, rifles, specialized equipment, contract provisions, base locations and so on. Since the defense management of a country consists of choosing between many substitutes, an analysis of costs and benefits of various options is vital.
Economizing in the economics of defense represents the principle of reallocating available scarce resources such that an output of the greatest possible value is produced. This can be achieved in two ways:
These two are closely intertwined since finding an optimal choice is worthless if institutions lead decision-makers to different choices, just as functioning institutions do not provide much help if an optimal choice is not found. An absence of a widely accepted tool to calculate the change in value when choosing among various options represents a major difficulty in the economics of defense because it makes the identification of the optimal allocation practically impossible. Differences of opinions on security and threat protection topics are common between people.
Although the economics of defense mainly studies microeconomic topics, which involve allocation optimization and optimal choice identification, it also looks into several macroeconomic topics, which focus on the impact of defense expenditures on various macroeconomic variables such as economic growth, gross domestic product and employment. One branch of defense economics takes an institutional approach to analyze defense resource allocations. This approach aims to maximize the effectiveness and the efficiency of military performance, and provide measures targeted at improving the management of armies. This area also studies critical infrastructures such as road, rail, water, health, electricity, and cybersecurity networks, to improve their resilience against intentional attacks.