American Economic Review: Vol. 103 No. 3 (May 2013)


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Some Basic Economics of National Security

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Murphy, Kevin M., and Robert H. Topel. 2013. "Some Basic Economics of National Security." American Economic Review, 103(3): 508-11.

DOI: 10.1257/aer.103.3.508


We define national security (NS) as public policies that protect the safety or welfare of a nation's citizens from substantial threats. NS capital provides societal insurance against widespread harm or catastrophe, so optimal NS investments may have very low expected rates of return. Investment targeted at extreme events (war) has spillovers, reducing potential harm in less threatening situations as well. Potential threats are highly uncertain, which raises the value of ex-post scalability of NS technologies. Higher probabilities of extreme events raise the demand for flexibility, so ex-post responses to threats are more elastic, but may reduce current precaution.

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Murphy, Kevin M. (U Chicago)
Topel, Robert H. (U Chicago)

JEL Classifications

F52: National Security; Economic Nationalism
H56: National Security and War

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