Olivier Kooi

Welcome! I am a postdoctoral researcher at the London School of Economics and a Senior Research Fellow at RAND Europe. My research is supported by DARPA’s NASCENT programme. I received my PhD in Economics from the University of Chicago in 2025. I am on the 2026–27 economics job market.

My research studies the externalities that arise from national security considerations and how governments should intervene in markets to address them. I study both trade and military conflict. My work integrates general equilibrium models used in macroeconomics and international trade with models of interstate bargaining and deterrence.

My main research fields are macroeconomics and international trade. My secondary fields are political economy and public finance.

Email: o.b.kooi@lse.ac.uk

Job Market Paper

Industrial Capacity as a Military Deterrent

We present a model in which industrial capacity can have a strategic role as a military deterrent. Military outcomes depend not only on initial military strength but also on the capacity to expand it during war. We study how a government can sustain peace through military deterrence at the lowest cost. We show that when wars are short, peacetime procurement of military equipment suffices because wartime production does not affect military outcomes. When wars are long, however, efficient deterrence also requires subsidies to industrial capacity because private investors do not internalize its strategic value as a military deterrent. Such industrial policy should favor technologies that allow the defense industrial base to scale output efficiently during war. We develop an Integrated Deterrence--Economy Model to assess the welfare gains and identify priority sectors. Industrial policy can raise welfare by reducing the procurement expenditure required to sustain a given level of deterrence. Industrial priorities include munitions, guided missiles, and propulsion units, and the model shows how these priorities vary with the type and expected duration of war.

Military outcomes depend not only on initial military strength but also on the capacity to expand it during war. We develop a model in which industrial capacity can have a strategic role as a military deterrent and use it to study how governments can sustain peace at the lowest cost. When wars end before wartime production can affect military outcomes, peacetime procurement suffices. When wars can be long, efficient deterrence also requires subsidies to industrial capacity because private investors do not internalize its strategic value as a military deterrent. Optimal policy gives larger subsidies to technologies that can expand output more readily during war. We develop an Integrated Defense Economics Model to quantify the gains from subsidies and identify priority sectors. Relative to a procurement-only benchmark, subsidies raise steady-state welfare and reduce military expenditure while maintaining deterrence. Priority sectors include guided missiles, propulsion units, and ammunition, and the model shows how these priorities vary with the type of conflict being deterred.

Working Papers

Power and Resilience: An Economic Approach to National Security Policy

This paper develops a theory of national security externalities based on the bargaining approach to conflict. Bargaining induces countries to value resilience to conflict because it improves bargaining outcomes. Resilience depends on economic decisions such as investment and trade patterns made by atomistic agents. The key assumption is that there is a missing market for bargaining power, which leads to a national security externality. The role for national security policy is to reduce the social cost of the national security externality by directly intervening in markets to affect the decisions that produce resilience. Various national security policies can be studied from this perspective. Examples developed in the paper include investment subsidies to the defence industrial base, the reshoring and friendshoring of production capacity, and various ways to weaponize trade, including sanctions. A quantitative exercise studies the value of reshoring productive capacity in a scenario where the US faces a potential conflict with China over Taiwan. The exercise identifies semiconductors as among the most valuable industries for reshoring. It also suggests the rise of China and corresponding expansion of trade increased the value of reshoring by over fivefold between 1997 and 2017.

Who Can Control Our Firms? National Security and Foreign Ownership Regulation

Governments around the world regulate foreign ownership for national security reasons. We develop a theory of ownership regulation based on the interaction between two contractual frictions. The first is a hold-up problem within the firm that determines ownership structures and multinational firm boundaries. Ownership allocates control rights in the event of private disagreement, shaping participants' incentives to provide non-contractible inputs and thereby firm profitability. The second is a hold-up problem between governments during political crises, when the economic consequences of conflict shape national bargaining power. Foreign ownership regulation is optimal because private firms do not internalize how ownership affects foreign control over production and thereby national bargaining power in a crisis. Our theory accommodates different reasons why domestic control may be valuable during conflict. Regulation is tighter in sectors where domestic control is more valuable, either because defense demand rises or because the absence of effective domestic control causes larger output declines. Consistent with the model's predictions, data on CFIUS reviews indicate that the United States imposes tighter regulation on sectors with higher defense demand and greater reliance on non-contractible inputs.

Work in progress

The Theory of the Economic Security Union