Chicago Booth professors identify value in flexible security

National security enhanced by multi-purpose and scalable investments given uncertainty of threats

Maximising national security as public budgets are squeezed is a growing concern for many Western governments.

Given the range of potential threats - military and non-military - that countries face, national security investments that may be deployed in multiple circumstances hold much greater value to states.

This is a conclusion reached by Kevin Murphy and Robert Topel, both professors of economics at the University of Chicago Booth School of Business, in an article published in the American Economic Review in May.

They argue that the highly uncertain nature of national security threats, in terms of both occurrence and magnitude, “raises the value of solutions that are flexible and scalable because they can be deployed…once the magnitude of a threat is known.”

The Chicago professors view national security investments as a form of insurance against harm to society from substantial threats. In addition to military assets, they also consider the development and provision of all public goods that counter potentially catastrophic outcomes - including certain public health and environmental investments - as such investment.

By the very nature of insurance, “it pays off in states of nature where reducing harm is extremely valuable,” says Prof Topel, though costs will be incurred in any event.

The study finds that investments targeted at insuring against extreme events have a positive spill-over effect, reducing potential harm from other threats. The professors cite the example of investment in military resources which, though designed for major warfare, also “avert or mitigate smaller conflicts and protect external supplies of important resources…or the sovereignty of important trading partners.”

On the other hand, however, they conclude that the elimination of a major potential threat may lead to increased vulnerability to other dangers, as national security investment is reduced.

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