Increasing returns to scale and the arms race: The end of the Richardson paradigm?

Abstract

Considered here is an arms race in which weapons production exhibits increasing returns to scale technology that stems from the increasing importance of information, electronics, computers, software, etc. in modern weapons systems. Just as in general equilibrium theory, increasing returns to scale in an arms race leads to very different results than constant or decreasing returns to scale. As one implication, increasing returns can lead to multiple stable equilibria, which can be ranked such that both parties are better off at a lower equilibrium. In this case, both parties could be made better off through arms control agreements that lead to a lower equilibrium. Another implication is that increasing returns can create the possibility of specialization and trade in weapons between the participants in an arms race. Yet another implication is that a third nation may sell weapons to both sides in a conflict. Overall, both the behavior of the participants in an arms race and the implied research agenda are very different for the alternative paradigm of an increasing returns to scale technology in arms production, as compared to the dominant paradigm, the Richardson model of the arms race. The latter assumes a constant or diminishing returns to scale technology, but it cannot account for some modern arms race phenomena. The Richardson model should be replaced by this new paradigm that takes explicit account of the increasing returns technology resulting from the nature of new types of weapons systems.