The Private Provision of National Defense Fred E

The Private Provision of National Defense Fred E. Foldvary Dept. of Economics San Jose State University fred. foldvary@sjsu. edu

paper at • www. foldvary. net/works/natdef. doc

Premise • • Large country such as the USA Threat of attack: missiles, terror Puzzle to solve: Whether a completely private-sector singlecountry defense is feasible and effective.

Some Libertarian Ideas • • • No continental defense needed. Several defense companies. Defense tied to insurance. Critics of governmental national defense: Rothbard, Hoppe, Molinari, Suede Wishful thinking, e. g. donations.

Non-excludable • “Public goods” defined as physically nonexcludable and non-rival. • But the country only defends its territory. • Outsiders are excluded. • Residents can be expelled and killed.

The market failure argument • Presumes the alternatives are either private firms or governmental monopoly. • Overlooks private-sector contractual governance. • The real alternatives: imposed government versus voluntary governance.

private or government? • • • Hotel administration. Landlord-tenant lease. Duplex contract. Housing co-op. Condominium association. Civic associations.

Difference between a town government and a homeowners’ association. • The collective goods are similar. • Two key differences: explicit contracts, and legal equals. • To really agree, one must agree that one agrees.

Explicit contracts • Real estate law requires signed contracts. • “all. . . important contracts, especially those of a permanent nature, should be both written and signed. ” Lysander Spooner

Legal equals • The legal equality of the contracting parties • No sovereign immunity for the board of directors. The people are the sovereigns.

Variety of private communities • Proprietary: hotels, shopping center, industrial parks, apartments, marinas, mobile home parks, ships, land trusts. • Associational: condominiums, civic associations, co-ops, co-housing.

associations of associations • • • Level 1: neighborhood communities. Level 2: Council of 20 level 1 s. Level 3: Council of level 2 s. Level h: highest, continental, level. The whole structure is contractual.

Free riders • A small number of free riders does not make the financing infeasible. • E. g. free riding the hotel elevators. • Members get a package of services. • There is a net benefit to membership. • The exit option promotes efficiency.

Ad hoc vs. on-going • Andrew Deckert: With an external threat, “it is in the interest of all. . . to collaborate. ” • Threats are continuous, and it is more efficient to provide continuous defense. • Continental defense is a natural monopoly.

Towards voluntary governance • Secession of neighborhoods and of particular services such as schooling. • Tax substitution.

Financing private defense • Private firms and communities seek to maximize profits and property values. • Finance follows the benefit principle. • Efficient provision avoids adding to marginal costs. • Hence, no deadweight loss.

Territorial civic goods • Territorial collective goods make locations more productive and more attractive. • A greater demand generates higher rent. • If paid by taxes, it is a subsdidy to rent takers and a double billing of others. • Efficient communities use the generated rentals.

Collecting the payments • • • Rentals paid by tenants. Assessment of associations. Fees with demand revelation. Fees for negative externalities. Sympathetic donations.

Market failure rebutted • There are no guarantees. • That market provision is feasible. • Market failure doctrine claimes that markets cannot possibly succeed. That is false. • The private provision of national defense would more closely reflect public desires and would not impose an excess burden.