How Blackwater Takes Uncle Sam for a Ride - and Why He Likes It

Fahn, Matthias und Hadjer, Tahmina Sadat (Mai 2014): How Blackwater Takes Uncle Sam for a Ride - and Why He Likes It. A Model of Moral Hazard and Limited Commitment. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2014-12

Abstract

Private Military and Security Companies (PMSCs) have been gaining increasing media and scholarly attention particularly due to their indispensable role in the wars in Afghanistan 2001 and Iraq 2003. Nevertheless, theoretical insights into the agency problems inherent when hiring PMSCs and how to optimally incentivize them are scarce. We study the complex relationship between intervening state, host state, and PMSC, taking into account the diverging interests of all involved parties as well as potential agency problems. We develop a theoretical model to characterize a state’s optimal choice whether to perform a task associated with an intervening mission itself, hire a PMSC and optimally design the contract, or completely abstain from it. We find that it might be optimal to hire PMSCs even if they are expected to do a worse job than the intervening state would do itself. This outcome is especially problematic for the host state, which prefers associated tasks to be done as good and carefully as possible. Furthermore, the often-heard call for transparency regarding agreements with PMSCs can lead to a situation where the latter’s performance gets even worse - namely because the ability to implicit reward PMSCs for a good performance in the past is reduced.

• Dokumententyp: Paper
• Keywords: International Conflicts, Private Military and Security Companies, Moral Hazard, Relational Contracts
• Fakultät: Volkswirtschaft > Munich Discussion Papers in Economics
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: C72, C73, F51, F53
• Sprache: Englisch

Literaturliste

[1] Abrahamsen, Rita, and Williams, Michael C. (2010), Security Beyond the State: Private Security in International Politics. Cambridge: Cambridge University Press.

[2] Abreu, Dilip; Pearce, David, and Enrico Stacchetti (1990), “Towards a Theory of Discounted Repeated Games with Imperfect Monitoring,” Econometrica, 58, 1041-1063.

[3] Akcinaroglu, S., and Radziszewski E. (2012), “Private Military Companies, Opportunities, and Termination of Civil Wars in Africa,” Journal of Conflict Resolution, 00, 1-27.

[4] Avant, D.D. (2005), The Market for Force: The Consequences of Privatizing Security. Cambridge: Cambridge University Press.

[5] Bailes, A., Schneckener, U., and H. Wulf (2007), “Revisiting the State Monopoly on the Legitimate Use of Force,” Policy Paper No. 24, Geneva Centre for the Democratic Control of Armed Forces (DCAF).

[6] Berrios, R. (2006), “Government Contracts and Contractor Behavior,” Journal of Business Ethics, 63, 119-130.

[7] Branovic, Ž. (2011), “The Privatisation of Security in Failing States: A Quantitative Assessment,” Occasional Paper - No 24, Geneva Centre for the Democratic Control of Armed Forces (DCAF)

[8] Brooks, D. (2000), “Messiahs or Mercenaries? The Future of International Private Military Services,” International Peacekeeping, 7, 129-144.

[9] Bull, Clive (1987), “The Existence of Self-Enforcing Implicit Contracts,” The Quarterly Journal of Economics, 102(1), 147-159.

[10] Calzolari, Giacomo, and Giancarlo Spagnolo (2009), “Relational Contracts and Competitive Screening,” mimeo.

[11] Carafano, James J. (2008), Private Sector, Public Wars. Contractors in Combat - Afghanistan, Iraq, and Future Conflicts. Praeger Security International: Westport, Conn./London.

[12] Carmola, Kateri (2010), Private Military Contractors in the Age of New Wars: Risk, Law and Ethics. London: Routledge.

[13] Carter, Aston B. (2011), Commission on Wartime Contracting Hearing (March 28, 2011), available under www.wartimecontracting.gov.

[14] Chesterman S and Lehnardt C. (2007) From Mercenaries to Market: The Rise and Regulation of Private Military Companies. Oxford: Oxford University Press.

[15] Cilliers J and Mason P. (1999), Peace, Profit or Plunder? The Privatisation of Security in Wartorn African Societies. In: Cilliers J and Mason P (eds). Pretoria: Institute for Security Studies.

[16] Cockayne, James (2007), Make or Buy? Principal-Agent Theory and the Regulation of Private Military Companies. In: Chesterman, S., and Lehnardt, C. (eds.) From Mercenaries to Market. Oxford: Oxford University Press, 197-216.

[17] Cockayne, J., Mears, E.S., and I. Cherneva (2009), Beyond Market Forces: Regulating the Global Security Industry. New York: International Peace Institute. [18] CWC (2011), Wartime Contracting. Final Report to Congress. In: Afghanistan UCCoWCila (ed).

[19] Dickinson, Laura A. (2007), Contracts as a Tool for Regulating Private Military Companies. In: Chesterman, S., and Lehnardt, C. (eds.) From Mercenaries to Market. Oxford: Oxford University Press, 217-238.

[20] Feaver, P. (2003), Armed Servants. Agency, Oversight, and Civil-Military Relations. Cambridge, Mass.: Harvard University Press.

[21] Fong, Yuk-Fai, and Jin Li (2010), “Relational Contracts, Efficiency Wages, and Employment Dynamics”, mimeo.

[22] Francioni, F., and N. Ronzitti (2011), War by Contract. Human Rights, Humanitarian Law, and Private Contractors. Oxford: Oxford University Press.

[23] Fudenberg, D., Levine, D., and Eric Maskin (1994), “The Folk Theorem with Imperfect Public Information,” Econometrica, 62, 997-1039.

[24] Gleditsch, N.P., Wallensteen, P., and M. Eriksson (2002), “Armed Conflict 1946-2001: A New Dataset,” Journal of Peace Research, 39, 615-637.

[25] Grasso, Valerie B. (2008), “Defense Contracting in Iraq: Issues and Options for Congress.” CRS Report for Congress. Order Code RL33834 (June 18, 2008).

[26] Grossman, Sanford J., and Oliver D. Hart (1983), “An Analysis of the Principal-Agent Problem,” Econometrica, 51(1), 7-45.

[27] Holmqvist, C. (2005), “Private Security Companies. The Case for Regulation,” SIPRI Policy Paper No. 9. Stockholm International Peace Research Institute.

[28] Holmström, Bengt (1979), “Moral Hazard and Observability,” The Bell Journal of Economics, 10(1), 74-91.

[29] Innes, Robert D. (1990), “Limited Liability and Incentive Contracting with ex-ante Action Choices,” The Journal of Economic Theory, 51 (1), 45-67.

[30] Krahmann, E. (2010), States, Citizens and the Privatization of Security. Cambridge: Cambridge University Press.

[31] Krahmann, Elke (2011), “Beck and Beyond: Selling Security in the World Risk Society,” Review of International Studies 37, 1-24.

[32] Leander, Anna (2005), “The Power to Construct International Security: On the Significance of Private Military Companies.” Millennium 33, 803–26.

[33] Leander, Anna, and van Munster, Rens (2007), “Private Security Contractors in the Debate about Darfur: Reflecting and Reinforcing Neo-liberal Governmentality.” International Relations 21, 201-216.

[34] Levin, Jonathan (2003), “Relational Incentive Contract,” The American Economic Review, 93(3), 835-857.

[35] MacLeod and Malcomson (1989), “Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment,” Econometrica, 57(2), 447-480.

[36] Mandel, R. (2002), Armies Without States: The Privatization of Security. Boulder: Lynne Rienner.

[37] Mathieu, F., and N. Dearden (2007), “Corporate Mercenaries: The Threat of Private Military & Security Companies,” Review of African Political Economy, 34, 744-755.

[38] Musah, Abdel-Fatau, and K. Fayemi (2000), Mercenaries. An African Security Dilemma. London: Pluto Press.

[39] Ortiz, C. (2010), “The New Public Management of Security: The Contracting and Managerial State and the Private Military Industry,” Public Money & Management, 30, 35-41.

[40] Pearson, Frederic, S. (1974), “Foreign Military Interventions and Domestic Disputes.” International Studies Quarterly 18:3, 259-290.

[41] Perlo-Freeman, S., and E. Sköns (2008), “The Private Military Services Industry,” SIPRI Insights on Peace and Security No. 2008/1. Stockholm International Peace Research Institute

[42] Rogerson, William P. (1985), “The First-Order Approach to Principal-Agent Problems,” Econometrica, 53(6), 1357-1367.

[43] Schreier, F., and M. Caparini (2005), “Privatising Security: Law, Practice and Governance of Private Military and Security Companies,” Occasional Paper No. 6, Geneva Centre for the Democratic Control of Armed Forces (DCAF).

[44] Shearer, D. (1998), “Outsourcing War. Why Mercenaries are a Fact of Warfare,” Foreign Policy, 68-81.

[45] Singer P.W. (2001), “Corporate Warriors: The Rise of the Privatized Military Industry and Its Ramifications for International Security,” International security, 26, 186-220.

[46] Singer, P.W. (2003), Corporate Warriors. The Rise of the Privatized Military Industry. Ithaca and London: Cornell University Press.

[47] Stöber, Jan (2007), Contracting in the Fog of War. Private Security Providers in Iraq: A Principal-Agent Analysis. In: Jäger, T., and Kümmel, G. (eds) Private Military and Security Companies. Chances, Problems, Pitfalls and Prospects. VS Verlag für Sozialwissenschaften: Wiesbaden, 121-134.