European NATO Burden Sharing: Historical Fit and Forecast under Lindahl and Nash-Cournot Models

Abstract

This thesis examines how European NATO members share the costs of collective defense and whether their spending patterns align with cooperative or non-cooperative burden-sharing models. Using the theoretical frameworks of Nash-Cournot (non-cooperative) and Lindahl (cooperative) equilibria, extended with geographic proximity to Moscow as a proxy for perceived threat, the study analyzes NATO military expenditures from 1960–2024.

Empirical testing finds no stable long-term cointegration between GDP share and defense burden, but yearly regressions show consistent evidence of Nash-Cournot behavior: countries tend to act non-cooperatively, with wealthier members contributing disproportionately more while smaller economies free-ride. Notably, since the 2000s, European NATO members have converged toward more equal contributions relative to GDP, though the United States remains the outlier with a much higher defense burden. Contrary to expectations, distance to Moscow is not a significant predictor of military expenditure, except in the immediate aftermath of Russia’s 2022 invasion of Ukraine.

Simulations of a European-only NATO under Lindahl burden-sharing suggest substantially different outcomes. If members contributed cooperatively based on GDP and proximity to Russia, wealthy and exposed countries such as Germany, France, and Finland would bear significantly larger shares, while smaller economies would contribute less.

The findings underline the persistence of free-riding within NATO, the political challenges of achieving cooperative allocation, and the potential redistribution effects if Europe were to assume full defense responsibility without U.S. support.