Top-Bottom Hierarchy: An Economic Analysis of the U.S. Overseas Military Investment*

ABSTRACT

In this paper, we examine theoretical and empirical aspects of the U.S. overseas basing of its military forces in other NATO countries. We use the concept of ‘top-bottom’ hierarchy that is captured by the Stackelberg leadership paradigm with one leader (the U.S.) and the followers (all other NATO member states). We identify and characterize the Stackelberg equilibrium, in which the follower countries are identified either as recipients or non-recipients of the leader’s overseas investment. The distinction between two types of members is determined on their wealth and the importance to the NATO defense. We also offer an empirical analysis to augment our theoretical findings.

KEYWORDS:

• Hierarchy
• NATO
• alliances
• public goods
• Stackelberg equilibrium
• overseas military investment

JEL CLASSIFICATION:

• C72
• D74
• F53
• H42

Disclaimer

We wish to thank Michael Alexeev and two anonymous reviewers for their thoughtful comments and suggestions. We are grateful to the editor of the journal, Khusrav Gaibulloev, for his prompt handling of our manuscript. The issues expressed in the article do not reflect the official policy or position of the National Intelligence University, the Department of Defense, the U.S. Intelligence Community, or the U.S. Governments. The authors are solely responsible for the article’s content.

Disclosure Statement

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

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.