Top-Bottom Hierarchy: An Economic Analysis of the U.S. Overseas Military Investment*

Abstract

ABSTRACT In this paper, we examine theoretical and empirical aspects of the U.S. overseas basing of its military forces in other NATO countries. We use the concept of ‘top-bottom’ hierarchy that is captured by the Stackelberg leadership paradigm with one leader (the U.S.) and the followers (all other NATO member states). We identify and characterize the Stackelberg equilibrium, in which the follower countries are identified either as recipients or non-recipients of the leader’s overseas investment. The distinction between two types of members is determined on their wealth and the importance to the NATO defense. We also offer an empirical analysis to augment our theoretical findings.