Outsourcing Military Force: A Transactions Cost Perspective on the Role of Military Companies

Since the mid-1990s, the operations of private, for profit, military companies have been the subject of increased political and media scrutiny. Firms in this industry provide both combat and support functions to sovereign governments. In this paper, the current and potential future role of these companies is examined from the perspective of transactions cost economics. The transactions cost approach suggests that inevitable contractual hazards sharply limit the combat/combat support role of these companies, despite substantial potential cost savings, even for poor countries with weak governments. However, there is a growing market, even in developed countries, for private provision of training and support.