THE PORTFOLIO BENEFITS OF FREE RIDING IN MILITARY ALLIANCES

When the collective effort of a military alliance has the characteristics of a public good, the total effort may be suboptimal because of free riding, causing losses in the allocative efficiency of the alliance. However, the same low correlation of ally effort that indicates the presence of free riding also produces portfolio efficiency benefits in the form of a gain in military returns and a lower risk than the constituent allies would experience on their own. A measure of these portfolio gains is suggested and applied to NATO and the Warsaw Pact for the period 1963-1988, and both are compared to the Triple Entente and Triple Alliance for the period 1879-1914. NATO and the Entente exhibited larger portfolio gains than their adversarial alliances.