Resource Allocation in Defense: Does Every Additional Euro Yield the Same Military Value?

Oktay BİNGÖL[1]

As defense budgets rise rapidly, security debates naturally focus on the question of "how much is being spent?" NATO allies' commitment to allocate 5 percent of their gross domestic product to defense and security-related areas by 2035 indicates that Europe and North America will direct significantly more resources toward defense in the coming years. NATO’s new Capability Targets also call for substantial capacity enhancements in areas such as air and missile defense, long-range weapons, logistics, and large-scale land maneuver forces (NATO, 2026a).

However, the fundamental problem of defense economics—prior to the sheer volume of resources—is how to distribute scarce resources among competing military needs. Increasing a defense budget does not eliminate all capability gaps at once. An additional billion euros could buy an air defense system, boost ammunition stockpiles, improve the readiness rates of existing platforms, address personnel shortages, develop a new long-range fire system, or invest in the defense industry's production capacity. All these options may be militarily sound, yet the same resource cannot be allocated to all of them at once. Therefore, the crucial question is: to which area should the next unit of resources be allocated to generate the greatest additional military value?

This question transforms defense budgeting from a mere accounting exercise into a strategic resource allocation problem.

Defense planning also involves making choices.

In defense planning, requirements exceeding available resources is the norm, not the exception. States cannot develop maximum capabilities across all domains to counter every conceivable threat; personnel, budgets, industrial capacity, technology, and time are all finite.

Consequently, every force structure embodies choices—whether implicit or explicit. Allocating more resources to one area may mean less capacity in another. From an economic perspective, opportunity cost explains this situation. The cost of a resource allocated to a military investment is not merely the money paid; it is also the alternative military capacity that could not be created with that resource.

Eugene Gholz’s (2003) approach to military efficiency offers an important analytical foundation. Gholz links military efficiency to the opportunity cost incurred when a state converts its existing economic and societal resources into military power. More efficient conversion allows the creation of the same level of military capacity with fewer resources, or the generation of greater capacity with the same resources. However, the most efficient capacity is not necessarily the most strategically valuable one. This is precisely what complicates defense planning.

Efficiency does not tell us whether we have chosen the "right thing."

We must distinguish between economic efficiency and strategic effectiveness. A country might produce a specific weapon system at a very low cost, thereby achieving high production efficiency. However, if the strategic environment actually demands a different capability, that efficiency alone creates no military value. The reverse is also true: a capability that appears very expensive, difficult to produce, and economically inefficient can be strategically indispensable if it closes a critical operational gap.

Therefore, we must ask two separate questions: How efficiently do we convert resources into military capacity? And does the capacity we produce solve the right military problem?

Gholz (2003) argues that military efficiency and military effectiveness can be distinguished for analytical and policy purposes. According to him, military efficiency concerns the state's performance in converting latent power into military power, whereas military effectiveness concerns how well the existing force performs its military missions with the resources at its disposal. This distinction illustrates why resource allocation cannot be approached merely as a matter of cost reduction. The goal of defense planning is not to create the cheapest force, but to build a strategically necessary force at an acceptable cost and risk level.

Marginal military utility

At this juncture, a concept that can prove useful in defense planning is "marginal military utility." Marginal military utility refers to the additional usable military capacity generated by an incremental unit of resources allocated to defense. This concept is not meant to calculate military power precisely in monetary terms; military effectiveness cannot be measured in such a deterministic manner. However, the concept prompts the decision-maker to ask a crucial comparative question: if the same resource were allocated to different areas, which would generate greater operational impact? Consider, for instance, a scenario where an additional 100 million liras in funding could be allocated to one of three options: a new platform, additional ammunition for existing systems, or investments in maintenance and training. If the mission readiness rate of existing platforms is already very low, purchasing a new platform might increase the nominal size of the total force but yield only a limited increase in usable combat power. Conversely, if that same funding raises the readiness rate of existing platforms from 60 percent to 80 percent, it could generate a far greater operational output. Therefore, the most visible investment is not always the one that delivers the highest marginal military benefit.

The first trade-off: modernization or readiness?

One classic dilemma in defense planning is choosing between building the force of the future and maintaining the combat readiness of today’s force. Modernization is essential because aging platforms and doctrines lose their effectiveness over time. However, when the modernization budget expands rapidly, the maintenance, training, and ammunition requirements of existing forces may come under pressure. Conversely, directing all resources toward current forces could lead to technological and doctrinal regression in the face of future threats.

Therefore, the choice should not be viewed simply as a conflict between readiness and modernization. The right question is, at what point does a drop in readiness create unacceptable risk today, and at what point does delaying modernization pose an unacceptable risk for the future?

Bernasconi’s approach to military effectiveness (2012) offers an important caveat here. According to him, military effectiveness must be evaluated over time; what matters is not merely the combat power a force has today, but also its capacity to learn, adapt, and sustain that power. Consequently, resource allocation determines not only current output but also the future capability trajectory.

The second trade-off: platforms or ammunition and sustainment?

In defense budgets, platforms are naturally the most visible elements. Aircraft, ships, tanks, missile launchers, and air-defense batteries are easy to count. In contrast, ammunition stockpiles, spare parts, maintenance capacity, logistics, and production lines are less visible. Yet, in terms of combat power, a platform is merely a delivery vehicle. A missile launcher lacking sufficient ammunition, an aircraft without spare parts, or a maneuver unit without a supply chain cannot effectively sustain operations, regardless of its nominal capacity. Therefore, resource planning should not evaluate platform acquisition and capability sustainment separately. Particularly in a high-intensity, protracted conflict, the correct metric is not simply "how many systems do we have?" More critical questions include: How many are operational? For how long can they be employed? How quickly can we replenish losses and consumption?

NATO’s emphasis—in its defense industry policy for 2026—on production capacity, supply chains, and delivering Capability Targets "in full and on time" underscores the institutional significance of this issue (NATO, 2026b).

The third trade-off: quantity or quality?

The quantity-versus-quality debate in defense planning is not new, yet it is growing more important in an era dominated by high-cost, advanced technology systems. Should one opt for a small number of highly sophisticated systems or a larger number of lower-cost systems?

These questions have no easy answers. Technological superiority is indispensable for certain missions. In other instances, however, numbers become the decisive factor due to requirements such as geographic dispersion, continuous presence, or the capacity to absorb losses. The military effectiveness framework proposed by Millett, Murray, and Watman (1986) shows that no single element—including technological superiority—can be decisive in all circumstances. Different means-ends relationships may carry varying weight depending on the conditions. Consequently, a "more advanced" system does not automatically equate to "better resource allocation."

The primary criterion should be: Which force mix generates the effect required for the mission at an acceptable level of cost and risk?

Fourth trade-off: national autonomy or collective efficiency?

NATO membership introduces a second optimization problem regarding resource allocation. A country plans not only its own national forces but also its contribution to the alliance's collective capacity. Here, the two distinct goals—national defense autonomy and alliance-level efficiency—can occasionally create tension.

An ally's decision to develop a portion of the same capability nationally may be based on political or strategic grounds. However, in certain areas, joint procurement, specialization, or multinational capability development could yield a higher total output.

The NATO Defense Planning Process (NDPP) explicitly addresses this issue. The NDPP aims to harmonize national and alliance plans and to ensure the delivery of necessary forces that are interoperable, ready, trained, and sustained.

Therefore, an investment's value cannot be measured solely by the capacity it adds to the national inventory. One must also ask: What gap does this investment fill in NATO’s overall force structure, and to what extent does it complement the capabilities of other Allies? Here, a distinction is made between national military utility and collective military utility.

Fifth trade-off: the war of today or the war of the future?

One of the most challenging aspects of defense planning is the time horizon. Operational needs relevant today may not remain valid in the future. Conversely, over-investing in future technologies could create dangerous gaps in current force capabilities.

NATO’s NDPP addresses short- and medium-term capability requirements within a planning perspective that extends up to twenty years. At the same time, the Alliance seeks to shorten the time required to procure and integrate new technologies; under the Rapid Adoption Action Plan, it aims to adopt specific technological products within approximately 24 months (NATO, 2025). Therefore, resource allocation must balance two distinct risks: "capability obsolescence"—where current systems become inadequate in the future—and "capability latency"—where a gap emerges in the current force while awaiting future systems. The optimal portfolio enables the transition to the future force while maintaining current deterrence.

Five questions for evaluating resource allocation

These trade-offs demonstrate that resource allocation decisions cannot be evaluated solely based on program costs. In defense planning, it is useful to systematically ask the following five questions for every major investment:

One: What military problem are we solving? Is the investment linked to a clear strategic or operational requirement?

Two: Is the bottleneck truly here? Is the factor limiting total combat power a lack of platforms, munitions, personnel, maintenance, C2, or logistics?

Three: What is the marginal military return of the next unit of resources? Could the same funds generate greater operational output in an alternative area?

Four: When will the capability become available? The contribution of a capability ready in five years to addressing today's threat differs from that of a capability ready in six months.

Five: What does the national investment contribute to the collective NATO force? Is the capability interoperable? Can it be used in joint plans? Does it mitigate a genuine Alliance shortfall?

Collectively, these questions establish a "resource-to-effect" logic.

Example of long-range fires

Long-range fires serve as a particularly apt example to illustrate this logic. NATO's 2025 Capability Targets identify long-range weapons as a priority capability (NATO, 2026c). At first glance, the problem of allocating resources to acquire more long-range systems might appear straightforward. However, the actual capability chain is far more complex. A long-range strike capability relies on target intelligence, sensor-to-shooter connectivity, command-and-control systems, trained personnel, sufficient ammunition stocks, reloading and logistics capabilities, maintenance infrastructure, industrial production, and NATO interoperability.

Therefore, the question of resource allocation should not be formulated as "How many new launchers should we acquire?" but rather as "Which element of the long-range strike chain would yield the greatest additional operational impact through marginal investment?"

If a force possesses sufficient launchers but lacks adequate ammunition, the marginal value of an additional launcher may be low. In another force, even if ammunition and launchers are sufficient, a weak targeting architecture implies that investment should focus primarily on ISR and C2. In a third scenario, the entire operational chain might be ready, yet the industrial replenishment rate might prove incapable of sustaining high-intensity consumption.

Consequently, the same "long-range fires capability gap" definition could require three distinct resource-allocation solutions across three different countries.

For NATO, the core issue is not more money, but a better portfolio.

Substantial increases in defense budgets do not eliminate the resource allocation problem; paradoxically, they make it even more critical. This is because larger budgets also increase the cost of poor allocation. The defense industry lacks unlimited short-term production capacity, cannot rapidly generate trained personnel, and faces long lead times for major platforms, so additional funding does not automatically translate into increased military capacity.

Therefore, the success of NATO’s "5 percent era" should be evaluated not merely by the total funds spent, but by the resulting force mix. The NATO Defense Planning Process aims to build necessary capabilities most effectively, align national plans with Alliance requirements, and mitigate critical shortfalls. In economic terms, this entails not just increasing resources, but reallocating them in line with strategic priorities.

Conclusion

Resource allocation in defense is essentially an optimization problem, yet it is more complex than classical economic optimization. The goal is not to minimize costs, nor is it to procure the maximum number of platforms. The correct objective is to create a force mix that generates the highest strategic and operational value—within acceptable risk levels—using available resources.

Consequently, three distinct concepts must be differentiated in defense planning:

Resources: How much are we spending?

Efficiency: How much military capacity do we generate from these resources?

Effectiveness: To what extent does the generated capacity produce the required military outcome?

As Bernasconi (2012) points out, political objectives, military means, and economic sustainability cannot be assessed in isolation. An inability to sustain the desired force structure with available national resources is not merely a budgetary issue; it is a strategic problem concerning the relationship between ends, ways, and means. Therefore, in an era of rising defense budgets, the fundamental question facing decision-makers shifts:

“How much more resource should we allocate to defense?” A more difficult question must now be added alongside that one: “Where should we invest the next euro to generate the greatest usable military power?” The quality of defense planning will increasingly depend on the answer to this second question.

References

Bernasconi, J. J. (2012). Military effectiveness: A reappraisal. Biblioscholar

Gholz, E. (2003). Military efficiency, military effectiveness, and military formats [Paper presentation]. Annual Meeting of the American Political Science Association, Philadelphia, PA, United States

Millett, A. R., Murray, W., & Watman, K. H. (1986). The effectiveness of military organizations. International Security, 11(1), 37–71. https://doi.org/10.2307/2538875

NATO. (2025). NATO Defense Planning Process. https://www.nato.int/en/what-we-do/introduction-to-nato/nato-defence-planning-process

NATO. (2026a). Deterrence and defense. https://www.nato.int/en/what-we-do/deterrence-and-defence/deterrence-and-defence

NATO. (2026c). NATO’s Role in Capability Development. https://www.nato.int/en/what-we-do/deterrence-and-defence/natos-role-in-capability-development

NATO. (2016b). Strategy for Industry-NATO Cooperation. https://www.nato.int/en/about-us/official-texts-and-resources/official-texts/2026/07/08/strategy-for-industry-nato-cooperation

[1] Prof.Dr., İstanbul Strateji, fertel1999@gmail.com, https://orcid.org/0000-0002-4794-5656