The Economics of Road-Side Bombs

Imagine a product which becomes more popular as it gets more expensive.

I'll give you a couple of seconds.

If you can't think of one, that's ok. Economists have documented only a few examples of such goods (called Giffen goods after the British statistician Robert Giffen).

Robert Jensen and Nolan Miller, both of Harvard, showed us in July how even as the price of rice was going up, poor Chinese bought more of it.

The reason?

People need a certain amount of calories to survive--let's say 1600 per day. You can either get that by consuming rice and perhaps some vegetables alone, or by eating rice, vegetables and a few bites of meat.

But meat is expensive. As the price of rice goes up, these poor Chinese can no longer afford the luxury of cooking meat, yet they still need to get to their 1600 calories. So they eat rice instead, which is still relatively cheap compared to meat. Voila!: Giffen behaviour in action.

It's indeed human behavior which makes a product a Giffen good, not anything intrinsic about the product itself. And Giffen behavior typically comes about on the margins of human existence with famine being one such example.

Another one -- the use of road-side bombs in Iraq -- is brought to our attention from a unique source: college senior Matthew Hanson. (But Hanson is not your typical college senior. According to this profile, he's already presented a paper at the National Bureau of Economic Research.

Improvised explosive devices have killed over 1,600 U.S. troops in Iraq, accounting for about 45 percent of all U.S. deaths. Meanwhile, the military has poured over $10 billion into counter I.E.D. measures including an agency created for the sole purpose of stopping road-side bombs. (As with almost everything else associated with the Iraq war, the military's efforts here have come under plenty of criticism.)

But Hanson argues that the counter-IED efforts may actually be effective, and in order to see it you have to view IED attacks as Giffen goods.

The key point here is to see how conventional attacks are affected when the cost of wounding a soldier goes up. Similar to the Chinese case mentioned above, if there is a limit to how much insurgents can spend on attacks (i.e. they have a budget) and road-side bombings are cheaper than conventional attacks, then the number of conventional attacks should go down as road-side bombings attacks get more expensive.

Think of it as insurgents eating more rice (road-side bombs) and less meat (conventional attacks) even as rice (road-side bombs) gets more expensive because it's relatively cheaper to meat (conventional attacks).

To start, Hanson assigns a "price" to IED attacks based on the number of attacks needed to cause the same amount of damage. Here is a graph from Hanson's paper showing that road-side bombs do in fact increase with a decrease in the percentage of road-side bombings that are effective:

Hanson's model finds that a one percent decrease in the effectiveness of IED attacks due to U.S. military counter tactucs decreases conventional attacks by approximately two percent. In real terms, Hanson estimates that countermeasures have prevented at least 1,997 conventional attacks.

He concludes:

The number of non-IED attacks prevented exceeds the number of IED attacks rendered ineffective by the countermeasures, suggesting that the effectiveness of IED countermeasures has been significantly understated.

And likely a fringe benefit the military hadn't imagined.

UPDATEThe debate in the comments has moved over to Felix's blog. My favorite comment is from dis:

jesus f*****g christ!

what in the world are you guys smoking?

talk about random . . .

Add Your Comment

Report Abuse

Archive

Categories

Links