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Bargaining power and U.S. military aid in the post-cold war era

Wang Yu

Security and Defence Quarterly

2021

Vol. 35, No. 3

7--23

This study examines the effect of bargaining power on the allocation of U.S. military assistance. Conceptualising U.S. military assistance as an aid-for-policy deal, it applies a two-tiered stochastic frontier model to a data sample of the post-Cold War era. It shows that the bargaining effect accounts for a huge variation in U.S. military aid distribution. The volume of U.S. military assistance in equilibrium is lower than the baseline volume by 4% at the mean and by 6% at the median. The donor U.S. extracts a slightly larger portion of the transaction surplus at these central points. However, the game of surplus division is not always about equally strong hagglers as it may first appear. In fact, the quartile values show substantial variance in bargaining performance and, hence, an outcome of surplus division across transactions. The bargaining effect is highly significant in the allocation of U.S. military assistance in the post-Cold War era. The donor U.S enjoys a bargaining advantage at the mean and median, but rich variations are noticeable.