Jon Cauley

On the Economic Theory of Alliances

It is the purpose of this article to extend and to clarify the public goods approach to the study of alliances. In particular, the paper examines the nature of defense as a pure public good and draws the conclusion that some defense expenditure may be best classified as an impure public good due to the presence of divisibility and exclusion properties. The traditional pure public good model of alliances is analyzed in a more general framework in order to introduce more fully resource scarcity and to demonstrate the symbiotic properties of the military alliance. Two models of increasing generality recast the analysis so that defense is an impure public good. Both optimal membership size and production efficiency are studied in the impure public good model. The paper concludes with a rationale for world peace organizations based on the economic theory of clubs.

Assessing the impact of terrorist‐thwarting policies: An intervention time series approach

This paper employs intervention or interrupted time series analysis to assess the effectiveness of four specific terrorist‐thwarting policies undertaken between January 5,1973 and April 15,1986. These policies include the following: (1) installation of metal detectors in airports, (2) enhanced security for U.S. embassies and personnel, (3) the legislation of the Reagan “get‐tough” laws on terrorism, and (4) the U.S. retaliatory strike against Libya. The use of intervention analysis allows for a study of the dynamic realization of a policy. Both short‐, medium‐, and long‐run effects can be ascertained. The most successful policy involved metal detectors. Expenditures to secure U.S. embassies had the intended effect, but it also had the unintended effect of putting non‐U.S. diplomats at somewhat greater risk. The Reagen get‐tough laws were ineffective. Unfortunately, the Libyan raid had the unintended effect of increasing U.S. and U.K. attacks temporarily.

UN conventions, technology and retaliation in the fight against terrorism: An econometric evaluation

For rational terrorists, an increase in the cost of one mode of operation will induce substitutions into other modes. Co‐operative international efforts to thwart terrorism are hampered by incentives on the part of governments to renege. Our findings are consistent with these observations: the use of metal detectors reduced skyjackings but increased other kinds of hostage taking incidents. International agreements have had no discernible impacts on terrorism. After a surge in terrorist activity following the US bombing of Libya, there was a sustained reduction in resource‐using terrorist incidents. During this period, terrorists substituted into threat and hoax incidents; such incidents require few inputs. In the final assessment, the raid did not curb terrorism.

The Design of Supranational StructuresAn Economic Perspective

The nature of transnational public goods with international ranges of benefit spillovers is shown to justify, in some instances, the operation of a supranational structure in order to foster allocative efficiency. The design of an “optimal” supranational body is investigated from an economic perspective that weighs both transaction costs and benefits that are derived from the linkage of national entities. In particular, transaction costs in the form of decision-making, interdependency, and enforcement costs must be matched at the margin with transaction benefits in the form of efficiency gains, scale economies, and enlarged communication possibilities if optimal tightness of the link is to be determined. Additionally, the optimality condition for a complex supranational system requiring multiple supranational linkages is depicted. The role of technology with respect to the nature of transnational public goods and the design of supranational formations is briefly analyzed.

In Defense of a Collective Goods Theory of Alliances

This article defends the collective goods theory of alliances by showing that club theory is an appropriate tool for analyzing allocative issues of alliances from a positive prospective. The article concludes with a demonstration that Oppenheimer made an analytical mistake when he questioned the normative importance of Pareto optimality.

Agency cost and the crisis of China's SOEs: A comment and further observations

Abstract This paper compares and contrasts our earlier principal–agent analysis of Chinese state-owned enterprises (SOEs) with that of Zhou and Wang [China Econ. Rev. 11 (2000) 297.]. We argue that the focal principal–agent relationship in these SOEs consists of the manager as the principal and the workers as the agents. In addition, the paper addresses the appropriate representation of the state as principal and the manager as agent when the two top levels of SOEs are the focus. The modeling of collusion in a multilevel organization is also discussed. Other aspects in representing these SOEs are presented.

Fighting World War III: A suggested strategy

Abstract Utilizing a rational‐actor policymaker model, this paper presents the necessary and sufficient conditions that must be satisfied for the formation of a transnational antiterrorist institution. Such an institution would tie together nations in their struggle against international terrorism. In particular, these institutions could provide crisis management, preemptive strikes, and retaliatory strikes. After analyzing the obstacles to the formation of such institutions, we present a specific proposal for a transnational commando unit. We chose the parameters of the proposed institution so as to maximize the likelihood of initial formation. In addition, we discuss how the transnational commando unit could, if properly designed, surmount the obstacles to formation. As terrorist groups increase their cooperation and stage incidents of a transnational kind, nations will have to turn to such institutions to increase the effectiveness of commando units, eliminate safe havens, and share intelligence. Altho...

A general theory of interpersonal exchange

A general theory of interpersonal exchange is developed from a public goods, public choice point of view and within an analytical context that assesses both the benefits and the costs of social interaction. Social transaction benefits and costs are specified as a composite function of interpersonal bindingness, which itself depends upon five parameters. The model provides for the determination of an optimal personal degree of bindingness in a two-person relationship. Extensions encompass the more interesting reaction case, where two individuals each select their own optimal personal bindingness levels. Applications and conclusions complete the paper. qu]When love beckons to you, follow him, Though his ways are hard and steep ... For even as love crowns you so shall he crucify you. Even as he is for your growth so is he for your pruning.Kahlil Gibran The Prophet