Security, and in the narrower sense, protection, are not ordinary market commodities and differ in many ways from other consumer goods.8 As Skaper- das (2001) and Skaperdas and Konrad (2004) have plausibly demonstrated, the competition in the provision of protection differs from classic economic concepts regarding the factors of production, pricing mechanisms, and the resulting quality of the market product. Private protection providers do not compete via price mechanisms; rather, they use violent means to gain control of territory and revenues resulting from protection services. Moreover, it is necessary to take into account that ownership of goods and services is not exchanged voluntarily, but is rather acquired by force (Elwert 1999, 87). Unlike ordinary commodity markets, greater competition in the protection- providers’ segment therefore does not lead to more but rather less gain in benefits for all (Skaperdas 2001, 174). At the same time, competition between nonstate armed actors with no regulating central authority means that security dilemmas and arms races arise that favor an increase in violence. Without any effective protection of their lives or property rights, large segments of the population are prevented from engaging in economically productive activities and are forced to invest in their own protection instead (Bates, Greif, and Singh 2002, 613). This necessity to invest in the means of violence reduces economic productivity and efficiency (Skaperdas, 2001, 187).9 Under conditions of overt violence, resources cannot be effectively distributed. Survival in areas of limited statehood and the possibilities of profiting from the provision of protection services thus depend on one’s relative ability to exercise violent control of resources and social relations. Violence therefore becomes a necessary—albeit not a sufficient-condition for the ability to participate as a competitive actor in the security market. In this context, the growth of self-defense groups in Afghanistan that protect themselves against attacks by the Taliban or by units of the Northern Alliance has to be considered just as much as that of security-market participants and well-organized and militarily powerful rebel groups.
The spectrum of market participants can be extended still further. In subSaharan Africa, this category includes not only rebel groups and local militias, but also criminal cartels, traditional fighters like the Kamajors in Sierra Leone, and ad hoc groupings like the Area Boys in Lagos (Nigeria) who collect protection money on transportation routes and at weekly markets (see Bakonyi, Hensell, and Siegelberg 2006). Another critical group of actors who is contributing to the increased complexity of security markets and conflict structures in war and settings of postconflict peace building is that of Private Military Companies (PMCs). Militarily highly specialized PMCs not only offer a variety of services on today’s security markets but also operate according to free-enterprise calculations. Such internationally operating companies as Blackwater or DynCorp are the visible expression of a system of the politically sanctioned delegation of selected security functions to commercial enterprises by states or private groups (cf. e.g. Avant 2005; Leander 2003; Musah 2002; Singer 2003). However, the involvement of this group of actors affects the military power relationship and local conflict dynamics, as well as the calculations of state and nonstate actors to outsource certain forms of the military activity to private specialists. These security dynamics turn out to have particularly serious consequences in Colombia and Iraq. External interventionists who support internal armed groups become themselves competitors for resources and aggravate both the available informational asymmetries and the intensity of conflicts.10
From the perspective of conflict theory, the problem underlying the increase of armed actors is that reliable information about competitive groups as well as mutually binding security guarantees become increasingly insecure (Walter 1997; Cunningham 2006). However, the greater the number of potentially violent state and nonstate parties to a conflict is and the more intense the competition becomes, the more significant are informational asymmetries and commitment problems. Such dynamics not only affect the conflict behavior of armed actors, but also heighten the vulnerability of societal groups (i.e., the civilian population) who cannot provide for their own security by private means.
In terms of economic theory, the market structures in the security realm can be described as an unusual form of monopolistic competition: each group establishes its own, spatially delimited monopoly of protection, in which it must provide credible proof of its ability to provide security (Skaperdas 2001, 187).11 The prices that can be demanded for protection services are thus contingent on the number of armed actors, the degree of spatial separation between competitors, material opportunity structures, and alternative options for action for the affected population (e.g., flight or the construction of self-defense units). More specifically, it can be expected that greater competition among armed actors will lead to greater investment in combat and resources and at the same time increase information deficits and the difficulties in achieving credible commitments (Skaperdas 2002, 435).
Moreover, economic models assume that decision makers—be they armed actors or potential entrepreneurs of governance—will consider the relative benefits of two forms of economic activity: investments in the production of civilian goods and services or the investments in conflict perpetuating means.12 In other words, violent actors can choose between the institutionalization of a political order that guarantees ownership rights and organizes the interaction between providers and recipients of protection via a tax system, or a violence-mediated state of conflict, in which the civilian population is used as spoils, or as an extractable resource, to finance the capability of these actors for violent activity. But even under the conditions of armed contest between two or more violent groups, time-limited forms of cooperation are not impossible. A prime example is the formation of a time-limited alliance in Sierra Leone during the mid-1990s between the government, commercial security companies (Gurkha Security Guards Limited, Executive Outcomes, and Sandline International), and the self-defense groups of the Kamajor militias to fight the rebels of the Revolutionary United Front (RUF) (Abdullah and Muana 1998, 185).
Fundamentally, these considerations mean that armed groups can strategically choose between the provision of security and the maintenance of insecurity. However, the more promising military and economic profits become, and the more uncertain a future under conditions of peace appears (Fearon 2004), the higher the value of insecurity strategies should become. In view of the structural characteristics of insecurity, Stergios Skaperdas (2002, 444) assumes a reverted shadow of the future, particularly in areas of warlord competition. The prospect of the elimination of competitors and of resulting greater profits increases the value of violent conflict strategies, compared to negotiated settlements. For the civilian population this has fatal consequences. First, the demand for protection services rises with the increasing degree of insecurity; however, the free choice of protection providers is greatly limited. Second, the risk increases that actors in the conflict will turn to strategies of indiscriminate violence (Kalyvas 2006; Weinstein 2006; Olsen 2007; Wood 2008) and promote diffuse insecurity. Both empirical evidence and formal models have provided evidence that arbitrary violence and destruction of property are more probable in zones of strategic insecurity because of an asymmetric distribution of information and multiple material insecurities (Skaperdas 2001, 188; Kalyvas 2006; Weinstein 2006). However, the ability to cause either security or insecurity (or both) becomes a political and economic resource, and hence an alternative source of power. As a result, the price for protection services increases with the military capabilities of potent armed actors (Mehlum, Moene, and Torvik 2002). Theoretically, the production of (in-)security is thus immediately tied to the logic of violence and resource extraction.
To sum up, in the context of an increasing tendency toward fragmentation of the actors’ spectrum, as well as the associated implications for the forms of security, the concept of the security market describes the structure and composition of the supply and demand side in the provision of protection commodities and its temporal and spatial coincidence in areas where the provision is not monopolized. Similar to corporations on regular markets, violent groups calculate their profit margin of investments in the supply of security— that is, whether to invest in the production of a secure environment (areas of strategic security) or to perpetuate the violent appropriation of resources.