Institutional Design and Fiscal Delegation in Military Alliances

In an increasingly unstable international system, geopolitical shocks have transformed global security dynamics, prompting states to reconfigure their military alliances' efficiency and decision-making. While the existing literature emphasises alliance formation or disintegration during periods of crises, it often overlooks alliance performance. This study proposes a rational choice–based theoretical model to examine how institutional design, specifically delegated fiscal authority without full fiscal union, affects alliance efficiency. The model shows that partial fiscal delegation can mitigate defence-spending free riding while preserving state sovereignty. The findings suggest that modern alliances can enhance their effectiveness by adopting targeted forms of political and fiscal integration, capable of improving internal coordination without requiring full centralization. Using NATO to test the theoretical model, this study contributes to the growing discourse on alliance adaptability by offering both theoretical and policy guidance for institutional reform.