Chapter 4 Politics of defence spending and endogenous inequality

Abstract

In recent years, economics has turned its serious attention to the explaining of conflicts and a peaceful resolution of conflicts. Some interesting and powerful microeconomic models have been developed, yet it seems there are gaps that motivate the current research. As our discussion shows below, the existing models are robust in explaining an equilibrium defence spending of a nation in a general equilibrium setting. Yet, there is little that we know about the regional distribution of defence spending that is likely to give rise to serious rent-seeking activities, politicking and consequent economic consequences in terms of regional disparity and inequality. In this work, we posit that defence spending is like a local public good that impacts on a regional, or local, economy. To be more specific, our model suggests that defence spending offers public infrastructure to a regional economy that, in turn, impinges on the costs of production of local firms, which thereby influence the competitive positioning of the regional economy in the national, or global, market. The goal of the work is to explore how the politics of allocation of defence spending can create an equilibrium regional inequality within a nation, which may in turn drive internal conflicts. Since an allocation of defence spending impacts on regional inequality, regional inequality becomes endogenous in our model. We establish an equilibrium inequality in our model that depends on the optimal allocation of defence spending across regions, which is driven by the electoral motive of an incumbent government.

Citation

Gangopadhyay, P. and Chatterji, M. (2009), "Chapter 4 Politics of defence spending and endogenous inequality", Gangopadhyay, P. and Chatterji, M. (Ed.) Peace Science: Theory and Cases (Contributions to Conflict Management, Peace Economics and Development, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 123-145. https://doi.org/10.1108/S1572-8323(2009)0000011008