Ex Ante Compensation for Military Death--Posner

The public is upset by the casualties that our soldiers are suffering in the Iraq war, and it might seem that their upset would cause no puzzlement even to an economist. But there is an economic puzzle. It is this. Ours is an all-volunteer military. No one is forced to join. Everyone who does join realizes that he may find himself in a combat zone. This is an expected cost of military employment and in a competitive labor market will be reflected in the wage. That is, the wage rate in a competitive labor market will compensate a worker for any risks that the particular employment can be expected to create--a proposition that goes back to Adam Smith. If the risk materializes, the employee has no cause to complain, provided it was the risk that he understood the job involved or should have understood it involved when he signed up for it, because he was compensated in advance. Yet that is not how the public views our military casualties. That is the economic puzzle which I address. What is not puzzling is why the families and friends of a killed or injured soldier grieve. Ex ante compensation for a loss does not wipe out the loss, even if it is a purely financial loss. It just provides the inducement to bear the risk of incurring the loss. One's spouse might consent to one's working at a very dangerous job, yet still grieve when one was killed at the job. Nor is it a puzzle why, as in the recent search for the three American soldiers captured by the enemy in Iraq, immense resources are devoted to rescuing soldiers, rather than writing them off as having consented ex ante to their plight. The compensating wage for bearing risk varies, obviously, with the risk, and the risk in turn depends on efforts that are and will be made to minimize the risk, including body armor, rescue, medical treatment, and so forth. Knowing that one's fellow soldiers do not just abandon one when the cost of rescue would be disproportionate to any tactical value of the rescue reduces the wage that a volunteer army has to pay to attract soldiers of the quality it wants. But the question remains how to explain the upset that the public feels at our mounting casualties in the Iraq war. Is it just shock at seeing photographs of dead and badly injured Americans? But in fact such photographs are rarely shown. Or is it perhaps that the risk of death and injury is greater than our soldiers had reason to expect when they signed up? Were this the concern, one would expect sympathy to be withdrawn from soldiers killed or injured who signed up within the last two years, for by two years ago it was clear that a great many recruits would be fighting in Iraq before the war ended. The case of soldiers who joined the military before the September 11, 2001, terrorist attacks indicated that the United States could be expected to be involved in more military operations than previously anticipated might be thought different. But most of those soldier completed their military obligation and so be allowed to resign without penalty years ago. The situation of those who "re-upped" is no different from that of recent recruits. Could there be a paternalistic concern--that recruits are not calculating the risk of death or injury accurately and as a result are not receiving an adequately compensatory wage differential over a safe job? This is unlikely. One reason is that a great, and probably unobtainable, amount of information would be required in order to calculate that differential. The risk of death or injury in combat is an example of what statisticians describe as "uncertainty" rather than "risk," reserving the latter term for situations in which a numerical probability can be estimated. The incidence and length of wars, the probability of serving in a combat zone and for how long, and the amount and severity of the fighting in that zone are all imponderables. The resulting uncertainty argues for an alternative to building ex ante compensation into the soldier's wage when he is hired. Hence the practice of paying combat pay as a bonus to the soldier's ordinary wage. At present, soldiers serving in combat zones, mainly Iraq and Afghanistan, receive $225 a month as combat pay on top of their regular wage. The $7,000 bonus paid Marines who agree to be deployed to a combat zone for seven months is a similar response to the difficulty of fixing conventional ex ante compensation. A further complication is illuminated by the economic concept of monopsony. The term refers to a situation in which there is no competition on the buying side of the market, as distinct from no competition on the selling side (monopoly). In a monopsonized market sellers receive less than they would in a competitive market because of their lack of alternatives. Persons who join the military to obtain or exercise technical skills have civilian alternatives, so the military has to compete with civilian employers for the services of such persons. But if you want to be a combat soldier, there is only one possible employer (if you are an American) and that is the U.S. government. So the government can pay a low wage to persons desiring that employment--in fact it seems that it can pay a lower wage than it does to its military technicians (adjusting for the value of the technical training that the latter receive) even though the latter are less exposed to combat risks. I suspect that the main reason for public distress at U.S. military casualties is altruism, which is stronger in a family setting but extends to strangers as well, as in charitable giving. Most people are grateful to those who protect them, even if the protectors are well compensated. But what of those Americans who believe that our involvement in Iraq is a mistake and that our soldiers, or at least most of them, should be withdrawn? Most of the critics of the war realize that the soldiers are trying to protect us, even if the soldiers are mistaken in believing that they are doing so. If anything, critics feel sorrier for the troops than supporters of the war, because they think that the casualties represent sheer loss, so that the soldiers are deluded as well as endangered.

Comments

[Dave M]

Military wages include nonmonetary, values-based benefits, as in much of the arts or non-proft social service. These wages are often lower than private-sector wages for comparably skilled workers for reasons beyond monopsony: the ideological benefits derived for working in support of a "noble" cause. For many, these ideological motives are much more valuable than their wages ever would be, especially considering the average education level of enlisted personnel.

[Lee B]

I was discussing this exact puzzle with a friend just yesterday.

As you noted, the market works to include compensation for the probability of death at a job. So why is every soldier's death outrageous, but a coal miner's is merely tragic?

The key, I think, is that soldiers agree to duty for some lesser pecuniary compensation on the expectation that bundled with the arduous duties and risk of death comes some nonpecuniary compensation: a feeling of righteousness and the honor of defending one's country.

Since it is now clear the Iraq War has little to do with our security, and that in the process there have been many Iraqi civilian deaths--so many that the whole adventure is morally dubious--the soldiers can't cash in on (as much of) the righteousness and honor.

That is all to say, what makes a soldier's death in Iraq outrageous is that each signed on with the understanding that he might have to die for the sake of his country, but none of them signed on thinking he'd have to die for nothing special---like a coal miner or sky-scraper window washer.

[Colin G]

My response may fall under the heading of "altruism," but I believe your analysis is incomplete. It is not merely that we feel bad that they died. Of course we feel bad. It is that america, especially an america whose baby boomers faught the very similar vietnam war, has an understanding of not just the loss of war but also the tragedy of it. As such, I think that this approach to the military is heavily missing the mark. For one, the military, particularly the infantry, draws heavily on a portion of the population that would be charitably described as "lacking marketable skills." There is a reason why the defense department began lowering the requirements on the IQ tests given to recruits. These individuals are generally very young (the army targets college graduates if they can get them, but the average age of recruits is somewhere between 20 and 21), and have little to no marketable skills. While the training offered by the military may be of value to them, it is simply unfair to suggest that they possess the wisdom and intelligence needed to make an informed decision. Additionally, much of the motivation to enlist in the military during wartime is due to irrational forces such as "revenge," "racism," "hyper-nationalism," and general mean-spiritedness. This conspires to create a class of pre-soldier who are not capable of understanding the consequences and implications of their actions. And so I suggest that many soldiers are not the rational economic actors which you seem to have been describing, and it is this factor of the american military that so distresses american civilians. I do not mean to imply that there are not a great number of thoughtful, bright, and/or older soldiers who willingly accept their role and its consequences. In the same way that folk lament unwed teenage mothers, they are right to ask why 18 year olds are going away with bandolliers and coming back without legs. We believe that in general they are not ready for the burden of that kind of life-altering event, and that if they knew what we knew they would have taken greater steps to avoid it. If those soldiers are not capable of making informed decisions, we "enlightened few" wish to correct that market imperfection which takes advantage of them, much as many people now are in uprising against variable-rate mortgage brokers for taking advantage of those who are vulnerable. Sure, it sucks. So does a tornado ripping through your town. But the tornado just sucks; it isn't tragedy. These soldiers are victims of economics.

[jimbino]

I believe the disconnect is attributable to religion. Religious folks do all sorts of things that are irrational, like paying to fly dead bodies around the world for “proper funerals.” To me, patriotism is a form of religion, as are the rituals of circumcision and marriage. It cannot be justified by reason.

Einstein, supreme humanist and my hero, was no patriot, and he vocally favored the defeat of his native Germany in WWI. I favored the defeat of the USSA in Vietnam and I also favor the defeat of the USSA in Iraq. Logic and my humanism in the face of Amerikan killing of innocents demand that I favor the increasing death of Amerikan soldiers, as unpopular (here) as that may be, so as to bring about the end of the Amerikan aggression, the sooner the better.

Those dead and maimed Amerikan soldiers are more to be pitied than grieved—pitied for their patriotism and their ignorance that leads them to give their lives in the cause of inflicting such grave suffering and death on others for no good reason.

[wilye]

Lee B, and in general - the military labor market is not frictionless; it is difficult to leave at any moment cost-free. So your coal miner can choose to go look for another job (or even go homeless and hungry) rather than continue being compensated at the current market price of coal-mining risk. However, once in a tour-of-duty deployed, it is costly (eg dishonorable discharge, prison time) to exit. So, on economics alone, the soldier has a rougher time.

Also the public may be feeling the guilt "free riders" will (should?) feel knowing that a public good has been provided across the board though the costs haven't been spread (Becker carries it to the net with noting that wages haven't moved enough to compensate iraq's risks, hence the costs of taxes don't balance out the benefit achieved).

== posner ==
The compensating wage for bearing risk ... depends on efforts that are and will be made to minimize the risk
==

The idea that the war is going on even though it is getting worse and little can be (or, is being) done to make it go better, is consistent with the idea that the risks are no longer minimized, though the compensation has been locked in before this was the case. Alternatively - my stock's share price was locked in before a CEO irrationally decided to continue his pet "Iraq War" project due to sunk costs alone rather than sober, calculating NPV assessment. Hence one can economically feel bad for the soldiers, who can't cut their losses and sell their "stock" in the war.

== posner ==
that recruits are not calculating the risk of death or injury accurately...? This is unlikely. One reason is that a great, and probably unobtainable, amount of information would be required in order to calculate that differential.
==

Your "one reason" seems to function the opposite of what you want it to do - if there is greater uncertainity to the point of potential unobtainable knowledge, the _harder_ it is to calculate the market price of war-fighting-risk, hence more paternalistic concerns. Even if one grants perfect rationality/competitiveness of labor markets, that uncertainity essentially transfers into a crazy large volatility of risk relative to compensation.

[jeff]

I disagree with Colin's analysis of the situation. I think that Posner has laid out an excellent, rational, argument. However, the thing missing is the virtual war that has been waged by non-supporters of the war since it began. I think this constant anti-war drumbeat by media outlets has contributed to the situation. It is hard to quantify that economically, but I believe that it is possible.

American soldiers do make an informed choice. They are the best trained and best practices soldiers in the world. They fully understand the committment they are making. You take an oath as a soldier before you go into basic training. These sometimes are the best and the brightest. For example, Chicago's Mayor Daley has a son in the US Army. He enlisted as a private. He has a college education, and an MBA from the GSB. There are many more like him.

It used to be that the elite fought the wars in Amreica because they had the most to lose. Legions of Ivy Leaguers went into battle in both world wars and Korea. It was only after the Viet Nam backlash that military service among elties in America became unfashionable.

Jimbino obviously has a poor grasp of the concept of patriotism too! I suggest you take a trip to our service academies and ask the students there why they are at a military academy, and what patriotism means to them.

This attitude towards our military is sickening. They give a lot of themselves and sometimes their life in service to this country.

[Michael apwlfv]

You have to disentagle 2 primary factors: (1) sympathy by the population, (2) the willingness of indivduals to go to war. Recently there has been discussion of AP's highlighting deaths in Iraq to Memorial Day. The tenor of much of the discussion was that it was mostly crocodile tears to berate war support. A critique of our 'gradualism' strategy in VN was that it hardened our enemy. Commitment by a people to war is not modeled by a linear equation, e.g. a 2% increase in the cost does not reduce enthusiasm by 2%*a in some analogy to a supply/demand curve. The blog Kesher Talk recently had a post reviewing a family's loss of it's son in Iraq; though evoking sadness, the father's statement about 'if the loss was worth it' was bound by the contingency that the effort there should be given a chance to reach a successful conclusion. Commitment is bound up in, in Lincoln's phrase, 'that these men shall not have died in vain.' Only success, if possbile, in the mission truly honors their sacrifice. As for the willingnes of individuals to go, I think it has to do with honoring and identifying with the ideals they see as underlying U.S society and not feeling helpless and anonymous in the face of what they see, in this case, as a despicable jihadi threat. This is not to say their aren't out also economic or social status reasons.

[jeff]

One other factor that I forgot to point out in a previous post is that many soldiers sign up for duty because of benefits they will accrue later in life. Soldiers get medical and pension benefits, and a benefit to help pay for attending college. You have to add and discount these benfits by a present value factor to see wha they mean today, but they are another motivating reason for a person to volunteer for service.

[Robert]

My guess? Such benefits are vestigial and came about at a time when most Americans lived on farms. Compensation for the loss of the breadwinner was posthumously awarded given both the grueling and uncertain nature of farmwork. After all, what was the phrase used back then to describe someone who died in battle?
"HE BOUGHT THE FARM"

[chicago auto insurance]

The Iraq war truly gave U.S. more casualties than risk. I just wish all of these stops to a point where nobody has to suffer anymore from those risks even if they have armors and bullet proof vests.

This has to stop somewhere along the way and i wish by the time it does, it is not yet too late...

[N.E.Hatfield]

I think everyone seems to be missing the point in regards to the reality of the situation. Of course friends and family members are going to mourn the loss of a friend or family member. It's only human. It even occurs in the military. As for the understanding of the risks inherent in a military career (occupational hazards?) everyone is aware of them from the lowly private all the way up to the Commander in Chief, but in themselves they find a well spring of COURAGE that overcomes the FEAR that can and does occur. Not too mention, a reliance on training and discipline. As an old regular once said, "I'm here because my orders are to be here".

As for the American public's angst, in regards to casualties, especially in Iraq and Afganistan and other wars or "police actions" this is due to a disconnect between idealism, self identity, and reality. Such that, our view of ourselves is that we are a good people with only the best interests of everyone at heart. In addition, our actions are meant only to help all those in need. The reality of the situation is, there are those who hate us to the very core or have a completely different world view that translates into political differences and military actions inflicting whatever damage or pain that they can cause. So the internal psychological conflict arises within the American psyche. Why are you killing us? We are only here to help you and make life better for you. And the response is ....

[Angus Lander]

Sociobiology adumbrates an alternative explanation, which is that humans have evolved an intrinsic desire only to interact with those who sympathize with the misfortunes of (some) others (because interactions with sympathetic persons are more likely to be advantageous than interactions with misanthropes, sociopaths, etc.). Correspondingly, humans have evolved an intrinsic predisposition to sympathize with the misfortunes of (some) others (so as to interact, profitably, with others). Thus, while the proximate cause of people's sympathizing with fallen soldiers is their feeling of sorrow, the ultimate cause is the benefits that accrue to one who feels (and expresses his feeling of) sorrow. The benefits of being seen as a "good guy" outweigh the (often minimal) costs of acting like a good guy.

[Thomas Bishop]

The risk of death or injury in combat is an example of what statisticians describe as "uncertainty" rather than "risk," reserving the latter term for situations in which a numerical probability can be estimated.

What I have yet to see is an analysis of "risk" "uncertainty" or "ambiguity" or whatever term we use when outcomes themselves (and how one feels about them) are not known. There are more outcomes than just getting killed and not getting killed. There are possibly an infinite number of things that could happen to a solider: dying quickly after a large explosion, dying slowly while being tortured, dying by friendly fire, losing an arm, losing a finger, losing an eye, losing one's mind, coming home a hero, coming home a nobody, coming home as if everything were the same,...

How can we analyze these situations when we don't even understand how people think about (or don't think about) the range of possible outcomes? Thinking about one outcome necessarily implies that one does not think about another outcome at the same time. If there are an infinite number of outcomes, do people need an infinite amount of time to completely analyze a situation? Due to time and mental constraints, do some people analyze only some situations, while others analyze other situations?

Furthermore, even if outcomes are finite, the range of “future selves” ranking future outcomes could vary (though it would be hard to argue that they vary infinitely). How people will feel about a future outcome may not be analyzable by them at the current time because people’s preferences may change over time and across environments. Do people at the present time in a calm environment know themselves well enough to understand how their future selves would feel after an outcome (or a series of outcomes) has occurred in an environment that is probably unlike anything they have ever experienced?

[Jake]

Americans in early 1942 would have marveled at most of the commentary above. Of course, if most of the commenters above, and their ilk, were transported back in time to 1942, they would eventually have had to learn to speak Japanese or German at gunpoint, in the best scenario one can imagine.

[michael apwlfv]

jimbino: "Einstein, supreme humanist and my hero, was no patriot, and he vocally favored the defeat of his native Germany in WWI. I favored the defeat of the USSA in Vietnam and I also favor the defeat of the USSA in Iraq. "

Which just goes to show that he was no 'Einstein,' at least not always. When it came time for Hindenberg, former head of the German High Command, to decide if he would grant the chancellorship to Hitler who had sadistic opinions about Jews, Einstein's contempt for Hindenberg's former mission was no help in restraining Hindenberg. And many poor Polish Jews paid the piper.

[Political Umpire]

I am surprised Judge Posner waited until the final paragraph to observe that the war in Iraq is unpopular, and that this might heighten the sympathy felt towards soldiers who die there. They had no choice but to go (or face severe censure, unless they absconded), and I think people get very annoyed seeing politicians and bureaucrats in Washington safely going about their business whilst other Americans die. This was not so in WWII or other 'popular' wars.

Secondly, I am very surprised Judge Posner made no mention of private military contractors, who number in the thousands in Iraq. They are paid much more highly than conventional soldiers. In some respects their risks are higher, since they are less well armed and are less numerous. On the other hand, they don't undertake offensive missions, but rather try and avoid gunfights if at all possible. The fact that private contractors have to pay many more times than the military (in basic salary) suggests that there is something about patriotism and other intangible factors that attracts candidates to the military and attracts support from the public for soldiers.

Incidentally the point about patriotism might have a clue as to why things are going badly for America in Iraq. Suppose in the late 1950s/early 60s a hypothetical Muslim superpower had invaded the deep south of the USA, pledging to overthrow the unjust regime responsible for Jim Crow laws and citing America's attempts to invade or influence its neighbours in Cuba and elsewhere as evidence for the need for 'regime change'. Imagine that Muslim soliders patrolled the street and blew up churches which they said were harbouring militants. Texan oil was protected by heavily armed foreign troops pledging that it would be retained 'for the benefit of American people'. Would every American have welcomed the occupiers with open arms?

[Kyle M.]

Actually, Political Umpire, I would surmise that the reason Posner did not broach the topic of contractors is because he was talking about a monopsony and contractors would not hire a vast majority of the "boots" currently on the ground. The security contractors are primarily made up of the best and brightest(special forces) who would have many buyers for their services... and they do.

[Political Umpire]

Thanks for your response, Kyle. I don't disagree with your points, but would observe that the salaries which contractors are able to charge must be a relevant factor in discussing how much troops are paid. Another point, which I did not mention, is that the Pentagon is quite keen on private contractors not only because they are often expert and experienced former soldiers, but also because they don't get counted in official death statistics (though occasionally get media interest, as is happening here in the UK with the recently abducted British contractors).

To be sure, in order to obtain a position with private firms, one usually has to have military experience, and anyone who can put Delta (or, in the UK, SAS) on his C/V can charge a higher price. There are other factors aside from basic salary as well, which namely that private firms have to pay for their own equipment and bases, and also pensions and medical care, whereas ordinary soldiers do not.

[Kyle M.]

I believe that we often times forget how difficult it can be to transition back to civilian life. When my grandfather retired from military service after WWII he had many buyers for his skills, of which, happened to translate well into a post-WWII economy. For instance, he was an iron worker for the rest of his working days. Jobs in industries of yesteryear had many similar skills to that of the military. In Michigan, the auto industry(line work) was also another enormous generator of job opportunity for these soldiers. Statically, at least, we are now in a an economy dominated by jobs in services. A “service-centric” economy means that retired combat soldiers now have fewer buyers for their skills in, coincidentally, fewer industries.

I would thus propose that a number of recently retired U.S. soldiers now face an environment with characteristics of oligopsony; this trend, in all probability, shall continue in the near future.

[anon]

Maybe the families of those killed in Iraq and Afghanistan should hire William Webster to get themselves some ex post compensation.

http://tinyurl.com/22s6gm

***********

NASA paid $26.6M to Columbia families
Jim Leusner
Sentinel Staff Writer

April 15, 2007

NASA paid $26.6 million to the families of seven astronauts who died aboard space shuttle Columbia -- a settlement that has been kept secret for more than 21/2 years.

The space agency recruited former FBI Director William Webster, also a former federal judge, to act as a mediator and adviser in negotiating the out-of-court settlements, according to documents released to the Orlando Sentinel through a federal Freedom of Information Act request.

snip

Webster said his team met with the seven families and their attorneys, both collectively and individually, in 2004. The families made emotional presentations with videos, computerized slide shows and economic projections for lost income.

Each family presented its own view of the financial damages they were due, but all agreed to receive the same award for pain and suffering of the astronauts during the accident, Webster said.

"It was a moving experience," Webster said. "And as a total family, they all accepted the settlements.

"It was really an honor to do it. I didn't give the government's money away but tried to be fair to everyone."

[Tó]

Antes de mais parabéns pelo blog!
Excelente conte√∫do,continue!
Convido-o agora a visitar:

http://aguia-de-ouro.blogspot.com/

Futebol e política num só!
Obrigado!

[Sandy Schwab]

I love Judge Posner's writing...surprisingly he is featured in www.underneaththeirrobes...the HPI has been restored...this is an excellent article about emotions and military casualties...an airforce recruiter told me that he tells recruits that they are not going to school they will be breaking things and killing people...if a recruit does not want to break and kill then don't join the service...it really doesn't matter whether the war is justified or not Americans will always deeply grieve the loss of our servcie personnel...this is AMERICA....

[Steve Gilbert]

#1. Why we the public feel the way we do,
regardless of our views on the war, can be
explained in one word: COMPASSION.

#2 Why do troops go into combat? Because they're
sent or for patriotic reasons they volunteer.

Sorry, but its not the sort of thing that penetrates the
academic mindset

[Orin T. Larson]

After reading your analysis I don't think you will ever get the true meaning of "Go tell the Spartans, passerby, that here lie the 300 obedient to their orders."

The market just does not understand the concept of "for the honor of the regiment." There is an old Keith Laurmer short story by that name that explains it very well.

[Wes]

Posner: The public is upset by the casualties that our soldiers are suffering in the Iraq war...Are they? The more accurate statement would be that the media frequently shows public figures claiming to be upset. The bottom line is that if preventing casualties of US soldiers was at the top of the priority list for the American public, the USA would not have invaded Iraq in the first place.My suspicion is that, because sympathy for the suffering of the troops is hard to argue with, public figures who wish to advance an agenda often frame their agenda in terms of sympathy for the suffering of the troops. Bush cites sunk costs as a key reason that the USA needs to continue the occupation (the whole "won't have died in vain" thing). The anti-war movement also cites the (ongoing) casualties as the reason to end the occupation.Because both sides have tied their arguments to concern over the casualties, neither side challenges the other on this point which in turns makes this tying even more attractive. Essentially, you have an endless feedback loop.