| Military expenditures are outlays that a country spend to deal with the security threat and to ensure the building of national defense and armed force. It plays a decisive role that a country supply appropriate military expenditures to enhance its national defense strength and to improve its military capabilities. History suggests that the humans spend a large number of resources on military affairs. Military spending in the world is very huge today. Why do military expenditures exist? What are the factors that determine the scale and structure of a country’s military spending? Are there any laws to follow about? In recent years, China’s military spending have been increased to some extent and it causes widespread attention at home and abroad. So, why does China’s military spending increase? We need to consider about how large scale of military expenditure should remain in the future, in order to support the requirements of national defense and the army’s modernization construction? And where should China focus on in order to optimize the structure of military expenditure? We explain the causes and features of military expenditure from the perspective of property rights and transaction costs at first; and then builds a military expenditure decision model with new institutionalism, and analyzes the choice of military expenditure’s structure; then it does the empirical research of United States’ and China’s military spending scale and structural evolution; at last, it puts forward some suggestions about how to optimize the scale and structure of China’s military expenditure.The essence of sovereignty competition between countries or striving for regime between different interest groups inside the country is to define sovereignty or ownership rights of the regime. Both sovereignty competition and regime fight have two basic solutions in principle. Firstly, allocate and define the contract rights via negotiating and signing political treaty peacefully. Secondly, resolve the dispute by means of war or military conflict. If we adopt the first approach, it will form inevitable contract costs in the process of all stakeholders to form negotiating intention, to build political mutual trust and political consensus, and to enter into and perform political contract. The second approach will lead a growth of military expending in related parties, and other value losses besides. If the cost of political contract in the first approach is zero, then the approach would be adopted definitely, so that there is no military spending. But the reality is, this kind of political contract cost is not zero, and instead of which is often very high, so the second approach becomes a lower-cost option for addressing conflicts of interest, then it would produce military expending now.Obviously, the nature of military expenditure is a kind of political transaction cost.Government makes choices according to the benefits and costs of defense action.The primary goal of government is to maximize its rents by controlling larger administer range in competition. Government has two constraints when making decisions: the marginal revenue gained by controlling scope governance, and the marginal cost. The point of equilibrium is the intersection of the marginal revenue curve and the marginal cost curve of the government. The equilibrium military expenditure scale depends on the position and shape of the marginal revenue curve and the marginal cost curve. The marginal revenue curve of government will move, it is influenced mainly by economic growth and tax rates. The marginal cost curves of government will also move, it is mainly impacted by security threats and production function of its defense activities and supply conditions of defense factors.There are two primary mechanisms of leading military expenditure structure’s changing, the first one can be called interest demands pull military expenditure structure’s changing. The second one can be called supply conditions of defense factors promote military expenditure structure’s changing. Demands of weaponry increase faster than manpower in time of war and decrease faster after war. So, the proportion of weaponry expenditure will rise in time of war, and the proportion of manpower expenditure will rise after war. Because of the existence of information costs and mobilization costs that hinder defense activities to adjust freely, military expenditure structure does not adjust with the changing demand. Generally, the proportion of defense factors that have lower average mobilization costs and can adjust quickly with demands has a more volatile ride. The mobilization costs of a defense factor depend on the characteristics of itself and its’ institutional arrangements. The changing relative price of defense factors can cause a substitution effect, which can also change the military expenditure structure in the long run.The empirical analysis of the United States’ military expenditure scale shows that,economic power, tax rate and security threats indeed have clear positive impacts on the United States’ military expenditure scale, and price of military labor measured with with per capita income also has a weak impact. However, the degree of openness has negative impacts on it, the progress of military technology measured with TFP has not obvious impacts. According to the empirical analysis of the United States’ military expenditure structure from 1940 to 2011, military personnel outlays and total personnel outlays experience a downward trend from a long-term point of view. The percentage of personnel outlays has a pronounced decline in time of war, while a pronounced rise after the end of the war. Since carrying out the recruitment system in 1973, the percentage of personnel outlays has a long-term process of sustained and significant decrease. The percentage of US Army military spending has a greatly rise in war time,then decreases in the post-war time, at that time, the percentage is comparatively low;meanwhile, the percentage of military expending of US Navy and Air Force is comparatively low during wartime, high during peace time. Generally speaking, the percentage of US Navy’s expenditure is relatively smooth, and Army’s is more volatile than the other two armed services.The empirical analysis of China’s military expenditure scale illustrates that our economic power and security threats we are facing indeed have great impacts onto the scale of military expenditure. Tax rate and price of military labor also have a little positive effect on it, but the degree of openness and the progress of military technology have some negative impacts. Both tax rate and security threats measured with the relationship between China and other great powers like the United States and the Soviet Union have an obvious positive effect on China’s military burden. However, the economic power and the degree of openness and the progress of military technology have some negative impact on China’s of military burden. According to the empirical analysis of China’s military expenditure structure, changes of the PLA’s expenditure structure during and after the Korean War proves that the percentage of personnel outlays will decrease during wartime, while increase after war; it also proves the prediction that the growth rate of equipment outlays is higher than that of personnel outlays, to some extent.At last, we predict the security threat level China will probably face, China’s economic outlook, and the primary direction of China’s expanding national interests in the coming decades. Then we put forward three specific countermeasures and suggestions to optimize the scale and structure of China’s military expenditures.There are three main innovations in this thesis. Firstly, we explain the causes and nature of military expenditures from the perspective of property rights and transaction cost, and point out that military expenditure is a rational choice the government has to make under constraints of multinational competitions and high political contract costs.Military expenditure is a kind of political transaction costs of the delimitation of sovereignty and political rights. Secondly, according to the state theory of new institutional economics, we present a new institutionalism model to explain what factors determine the scale of military expenditure. The model shows that the primary goal of a government is to maximize its rents by controlling larger administer range in competition. The equilibrium military expenditure scale depends on the position and shape of the marginal revenue curve and the marginal cost curve of the government.The model is different from the new classical military expenditure demand model apparently. Thirdly, we open up a new road to explain the change of military expenditure structure by introducing transaction costs and institutional arrangements.There are two primary mechanisms of leading military expenditure structure’s changing;the first one can be called interest demands pull military expenditure structure’schanging. The second one can be called supply conditions of defense factors promote military expenditure structure’s changing. Because of the existence of information costs and mobilization costs that hinder defense activities to adjust freely, military expenditure structure does not adjust with the changing demand. The mobilization costs of a defense factor depend on the characteristics of itself and its’ institutional arrangements. |
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