We model the decentralised defence choice of agents connected in a directed graph and exposed to an external threat. The network allows players to receive goods from one or more producers through directed paths. Each agent is endowed with a finite and divisible defence resource that can be allocated to their own security or to that of their peers. The external threat is represented by either a random attack on one of the nodes or by an intelligent attacker who aims to maximise the flowdisruption by seeking to destroy one node. We show that under certain conditions a decentralised defence allocation is efficient when we assume the attacker to be strategic: a centralised allocation of defence resources which minimises the flowdisruption coincides with a decentralised equilibrium allocation. On the other hand, when we assume a random attack, the decentralised allocation is likely to diverge from the central planner's allocation.
Abstract:The contemporary empirical literature on military spending has focused on institutional and conflict factors, and although has acknowledged the role of trade openness, it has not taken into account the position of a state in the trade network. Building on the concept of network centrality, we claim that the structure of trade networks affects the optimal investment in security, and that a country's level of military spending is a function of its strategic position in the global network of a critical commodity, such as oil. Our empirical results show that network centrality constrains military spending.
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