Allocating Security Expenditures under Knightian Uncertainty: An Info-Gap Approach

Michael Ben-Gad, Yakov Ben-Haim, Dan Peled

Research output: Contribution to journalArticlepeer-review

Abstract

We apply the information gap approach to resource allocation under Knightian (non-probabilistic) uncertainty in order to study how best to allocate public resources between competing defence measures. We demonstrate that when determining the level and composition of defence spending in an environment of extreme uncertainty vis-a-vis the likelihood of armed conflict and its outcomes, robust-satisficing-expected utility will usually be preferable to expected utility maximisation. Moreover, our analysis suggests that in environments with unreliable information about threats to national security and their consequences, a desire for robustness to model misspecification in the decision-making process will imply greater expenditure on certain types of defence measures at the expense of others. Our results also provide a positivist explanation of how governments seem to allocate security expenditures in practice.

Original languageEnglish
Pages (from-to)830-850
Number of pages21
JournalDefence and Peace Economics
Volume31
Issue number7
DOIs
StatePublished - 2 Oct 2020

Bibliographical note

Funding Information:
This research was supported by the Economics of National Security Program, Samuel Neaman Institute, grant no. 358.

Publisher Copyright:
© 2019 Informa UK Limited, trading as Taylor & Francis Group.

Keywords

  • Defense
  • info-gap
  • knightian uncertainty
  • robustness

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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