Exploitation Hypothesis and Numerical Calculations

Toshihiro Ihori (), Martin McGuire () and Shintaro Nakagawa ()
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Toshihiro Ihori: National Graduate Institute for Policy Studies
Shintaro Nakagawa: Konan University

Chapter Chapter 6 in International Governance and Risk Management, 2019, pp 159-215 from Springer

Abstract: Abstract The purpose of this chapter is twofold. First, we theoretically analyze simultaneous optimization of both self-protection and self-insurance by two countries facing the common risk of a disastrous event to derive simple analytical rules in the distribution of contributions. In this analysis, we provide a new perspective from the theory of collective risk management to reveal how allies share the burden of self-insurance and self-protection public goods. Second, we utilize our model to conduct numerical simulations of burden sharing in NATO from 1970 to 2010. In this simulation, we show that whether the conventional exploitation hypothesis holds depends on the risk profile that NATO faces. Our calculated results closely simulate the actual development of the military spending to GDP ratio.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advchp:978-981-13-8875-0_6

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DOI: 10.1007/978-981-13-8875-0_6

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