MBAAs Go to War: Competition in the Private Security Market and Conflict Outcomes

Abstract

Does competition shape private security firms' influence on conflict outcomes? PSFs have operated internationally for decades, but the recent U.S.-Iraq war has brought their battlefield presence into public view. Private security firms provide services ranging from armed combatants to life support and soldier entertainment. Yet, contracting in conflict environments presents unique challenges. While employers seek to minimize expenses while maximizing services, PSFs seek to maximize profits. This creates a dilemma for employers: PSFs are critical for military operations but have the potential to shirk due to weak oversight and limited failure penalties. Two factors — service specific competition and contract structure — influence PSFs' performance which, in turn, impact conflict outcomes. The expectations are tested using data from the U.S.-Iraq war from March 2003 to December 2007. Insurgent attacks are a proxy for the U.S. objective of establishing law and order. I show that competition influences firm performance and law and order in Iraq. The findings have important theoretical and policy implications for those states in the employment of private security firms.