Free riding in NATO after the Rise of Russia: cost sharing, free riding and selective incentives in NATO from 2009 to 2019

Abstract After a period of relative overperformance due to the focus on output indicators in the North Atlantic Treaty Organization’s (NATO) burden-sharing debate, we ask whether the shift back to input indicators prior to the Ukraine War meant that the smaller NATO allies have returned to their fringe position as NATO underperformers. According to the deterrence model, smaller allies are induced to free ride to a higher degree than mid-sized allies. Utilizing insights from public choice theory, our analysis demonstrates, first, that there is no support to the claim that the size of NATO member state GDP determines the percentage of GDP spent on defence. Second, selective incentives tend to reduce the incentive for small allies to free ride. The relationship between GDP and the percentage of GDP spent on defence capabilities is therefore conditional upon the net gain of the individual member state. Defence capabilities that are characterized as a public good when we control for exposed borders indicate a higher percentage of GDP spent on defence. Our conclusions show that even though small allies continue to free ride, they do so less than expected due to the existence of selective incentives in the period from 2009-2019.