MILOEK

Militärökonomische Forschung und Lehre
Research and Courses in Economics of Defense

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What are the costs of the conflict? Theoretically, these costs stem from two fundamental categories ─ the civilian dimension of a society and the military dimension responsible for the society’s war effort. However, this sharp distinction changes to a much more blurred constellation under real conditions. For example, a functioning civilian system signals to the soldiers that their relatives are safe and they can focus on their frontline duties. Thus, investments in the efficient organization of the civilian economy during times of conflict may have a direct impact on the military.  More importantly, the war time level in the production of military output has to be achieved by sacrificing civilian production (“the guns versus butter problem”, graphically illustrated by the economic concept of the production possibility frontier) and this will be reversed ─ at least, to a certain degree ─ after the end of the conflict when a period of disarmament and conversion will begin. This makes it highly likely that certain activities ─ thus, the corresponding costs ─ will be counted twice. For an overview of the disarmament experience in various countries after the end of the Cold War, refer to Brauer (2007). Based on these observations, the following distinction can be made for the costs of the conflict:

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The valuation of the losses in the civilian dimension of a society (natural environment, civilian victims, factories, infrastructure etc.) must not only consider the contributions of these resources to the civilian sector and the war effort during the time of the conflict, but also the negative consequences to the growth path of the society for the following peace time.

n	The losses and the strain put on the units’ performance potential due to their deployment in the ongoing conflict. There are three basic constellations available for how this deployment relates to the unit’s life cycle costs:

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Case I ─ The unit had been designed for another conflict. The deployment in this conflict may theoretically imply no additional risk in comparison to its alternative deployments. For example, the life expectancy of Roman soldiers in antiquity did not significantly differ from civilian workers →Erdkamp (2011, p. 427). Then, the life cycle costs of the unit remain unaffected and the opportunity costs of its deployment in this mission “only” consists in the best alternative available ─ either its use in another missions or its decommission.

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Case II ─ It is assumed that there is only this conflict and after its conclusion a permanent peace will be established. This implies that the unit’s full life cycle costs represent the social opportunity costs of its deployment in the conflict and replacing its losses will cost a corresponding share of this amount.

○	Case III ─ The conflict has been anticipated by the decision makers as one likely scenario, i.e., the conflict represents only one of the scenarios the unit is made for. Consequently, the deployment in the conflict requires a (risk-adjusted) share of the unit’s life cycle costs.