Potential Negative Externalities of Private Military Entrepreneurs from an Economic Perspective

ABSTRACT

Private military companies (PMC) can have considerable advantages for the customer on the one hand, but on the other hand can come with great dangers. Based on the theory of externalities, an attempt is made to illuminate this situation and to analyze the negative externalities associated with it. By using an instrumental case study method we can identify two potential negative technological externalities of hiring PMCs which should be internalized. These two are the violation of national law and international humanitarian law in the theater of operation, and the lack of control of the executive by the legislative branch in the exporting state. Based on this, we present and discuss options to eliminate these negative technological externalities. It can be shown that the preferable set of measures includes instruments to create transparency, and command-and-control regulations on the individual state’s level. While the second effect can easily be solved with domestic instruments, a supranational organization is needed to solve the first effect.

KEYWORDS:

• Private military companies
• external effects
• regulation

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. Private military providers are labeled with different terms and are defined in many different ways. Schreier and Caparini (2005, 14-22) present an overview of various attempts to define the terms.

2. Reputational risk is the danger that the good name of an organization or an individual can be damaged by the actions of this organization resp. this individual or by their contractual partners like employees or suppliers. See Gaudenzi, Confente, and Christopher (2015) for an overview of the literature of the reputational risk effect.

3. The idea of a competition between states is based on Tiebout’s approach (Tiebout 1956). See, e.g. Sinn (2004). The economic theory of arms race is essentially based on this insight. E.g. see Isard (1989), Brito and Intriljgator (1995) and Intriljgator and Brito (2000).

4. Singer (2003, 179) mentions the example of the Thai businessman Rakesh Saxena, who co-financed the operation of the PMC Sandline in Sierra Leone.