Abstract
This paper analyzes a national defense economy in which the army reduces the risk of attack and damage. The results show that it is important how countries or people feel about damage to military personnel, citizens and wealth from attack. The feeling determines the optimal levels of arms procurement and army personnel. It also affects international trade. It is found that labor (armaments) input into the military sector is not always decreased following an increase of wage (armaments price). The model suggests that conscription affects army expenditure and international trade.
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