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Optimal contracting with private military and security companies

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  • Fahn, Matthias
  • Hadjer, Tahmina

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, or hire a PMSC and optimally design the contract.

Suggested Citation

  • Fahn, Matthias & Hadjer, Tahmina, 2015. "Optimal contracting with private military and security companies," European Journal of Political Economy, Elsevier, vol. 37(C), pages 220-240.
    • Handle: RePEc:eee:poleco:v:37:y:2015:i:c:p:220-240
    DOI: 10.1016/j.ejpoleco.2014.10.004
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    Cited by:

    1. Benjamin Tkach, 2019. "Private military and security companies, contract structure, market competition, and violence in Iraq," Conflict Management and Peace Science, Peace Science Society (International), vol. 36(3), pages 291-311, May.
    2. Mohammad Ali Nasiri Khalili & Mostafa Kafaei Razavi & Morteza Kafaee Razavi, 2016. "An Optimized Mathematical Model for Items Supplies Planning of a Logistic System," Modern Applied Science, Canadian Center of Science and Education, vol. 10(10), pages 133-133, October.

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    More about this item

    Keywords

    International conflicts; Private military and security companies; Moral hazard; Relational contracts;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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