The Ukraine War and the Kill Market

Politico writes:

The [Ukrainian] program […] rewards soldiers with points if they upload videos proving their drones have hit Russian targets. It will soon be integrated with a new online marketplace called Brave 1 Market, which will allow troops to convert those points into new equipment for their units.

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The program assigns points for each type of kill: 20 points for damaging and 40 for destroying a tank; up to 50 points for destroying a mobile rocket system, depending on the caliber; and six points for killing an enemy soldier.

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Units will soon be able to use the special digital points they’ve been getting since last year by trading them in for new weapons. A Vampire drone, for example, costs 43 points. The drone, nicknamed Baba Yaga, or witch, is a large multi-rotor drone able to carry a 15-kilogram warhead. The Ukrainian government will pay for the drones that are ordered and will deliver them to the front-line unit within a week.

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The scheme is aimed at directing more equipment to the most effective units. It will also help to bypass bureaucratic procurement procedures and buy weapons directly from manufacturers.

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The ability to get points for killing enemy troops is also spurring competition among units; so far about 90 percent of the army's drone units have scored points. In fact, they are logging so many hits that the government has had to revamp the logistics of drone deliveries to get more of them to points-heavy units. “They started killing so quickly that Ukraine does not have time to deliver new drones,” Fedorov said.

Now, this is clearly a repugnant market. Repugnant market is a market where some people would like to engage in it and other people think they shouldn’t. (Think market in human kidneys. Or prostitution. Or the market in abortions. Also, watch a lecture about repugnant markets by Al Roth, who introduced the concept of repugnance into economics.)

Having acknowledged that, let’s put the feeling of disgust aside and try to think about the consequences of this new approach to war clearly.

First, let’s contemplate a bit on the raw, brutal efficiency of the markets. Cowen’s and Tabarrok’s course in microeconomics begins with a story that shows how market incentives beat the widely cherished moral and religious principles hands down:

Way back in 1787, the British government hired sea captains to ship convicted felons to Australia. Conditions on those ships were just awful. On one voyage, more than one-third of the men died and the rest arrived beaten, starved and sick. The public was outraged, newspapers called for better conditions, the clergy appealed to the captains' sense of humanity, and British Parliament passed regulations requiring better treatment of these prisoners. Unfortunately, those attempted solutions simply didn't work. The death rate remained shockingly high.

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There was one economist at the time who came up with a novel solution. It was implemented and it basically worked. Instead of paying the captains for each prisoner who embarked to Australia, the government would pay the captains only for the prisoners who arrived alive. Overnight, the incentives of the sea captains changed. The survival rate of the prisoners shot up to 99%. As one observer put it, economy beat sentiment and benevolence.

Survival rate went from 66% to 99%. In other words, if appeals on patriotic feelings and on civil duty fail to make the army fight well, market incentives will likely do much better.

One could even argue that their effect will be even more pronounced than it was with the prisoner transports. If a ship owner wanted to improve conditions for the prisoners being transported, all it took was an order for the crew to treat the prisoners better and a willingness to absorb the associated costs.

With military it is different. Armies are big, heavy organizations that the commanders are trying to steer. They exhibits what Clausewitz calls “friction”: You issue a command and nothing happens. Or, maybe it happens in a partial, half-hearted way. There’s an inherent incentive not to fight. Nobody wants to get killed after all.

Introducing a market system, on the other hand, allows the lower-level units to take calculated risks. Destroy that many enemy units and you can buy, say, an armored vehicle, that improves your safety. Friction gets greatly reduced.

All in all, if the Ukrainian experiment succeeds, there’s a non-trivial chance that the kill markets will become the most deadly military technology of our time.

And the appeal to Ukrainians is easy to see: This is an asymmetric technology, one that the Russian army would have difficulty adopting, for the very same reasons the Russian state can’t truly embrace free markets. Too much top-down control breaks the markets, make them serve the vested interests, allows for corruption and generally drives their efficiency down to the ground.

All of that being said, kill markets are far from a flawless instrument.

Once you start optimizing for kills, Goodhart’s law kicks in and it turns out that you are no longer optimizing for winning the war.

Read your Clausewitz again: The ultimate objective of any war is political, not military. You are not trying to kill as many enemy soldiers as possible. You are trying to gain territory, shield your citizens from enemy hostilities, or whatever your political goal is.

But you can’t build your political goals directly to the incentives for the individual fighting units! You have to introduce a proxy goal and if you get it wrong — which is all too easy — the machine can run amok, not only causing a lot of unnecessary suffering, but also not contributing to your war goals.

But there may be an even bigger problem at hand: How do you control the army?

Kamil Kazani has just published a great post on the Wagner rebellion, which drives the point home nicely:

When the Bolsheviks took over Russia, they were horrified by the prospect of a military coup by their own military officers. Governed by the impressions of French and English revolutions, they expected to be overthrown by a military putsch. English Revolution ends with Cromwell. French Revolution ends with Bonaparte. And so will end the Russian one.

Being obsessed with the possibility of a military putsch (by their own officers), and being determined to prevent it by whatever means possible, they took certain precautions to rule out even the theoretical possibility of a coup.

For that reason, they built the Leviathan structure of state security whose purpose and only reason for existence was to check the army, infiltrate the army, spy on the army, control the army and neutralise the army, should the necessity arise. Since 1917, that has been the key rationale of Russian military buildup.

And it’s not a problem specific to Russia. We are seeing a military out of control in Myanmar right now. We can also easily find many such examples in Africa and Latin America, either now or in the recent past.

So, if you make the top-down control of the army looser by introducing market mechanisms, if you give individual units more power over what they can do, you are also increasing the danger of the army (or a part thereof) becoming an independent political entity, with its own resources and its own goals, struggling for power, just like what happened back in 2023 with Wagner Group.

Finally, if we take the possibility that kill markers will become an extremely deadly military technology seriously, is there a way to ban it?

I am skeptical. Bans may sometimes work where the impact of a technology is fully symmetric. No side gets an advantage when both sides use it. Then there’s no point in using it in the first place.

But kill markets do not feel like that. The side that is able to execute better — and there will be huge differences, just consider how well are free markets managed in different countries — will get an upper hand.

Moreover, a working ban requires enforcement mechanisms, the ability to detect when your adversary is breaking the rules. But markets, unlike, say, chemical weapons, are not directly visible on the battlefield. Each side would suspect the other of using them despite the ban and might try to secretly use them as well.