Chandler S. Reilly

The Political Economy of Military Base Redevelopment

Chandler S. Reilly, Christopher J. Coyne (2025). Eastern Economic Journal 51: 7-26

Journal (DOI) · Markdown

Abstract

The Base Realignment and Closure (BRAC) process has been through five rounds since 1988 and resulted in the closure of 121 major military bases. The design of BRAC tied the hands of Congress and limited political influences over bases chosen for closure. However, researchers have overlooked political economy issues related to the evolution of BRAC and of base redevelopment after a base is slated for closure. This paper fills this gap by examining the post-closure process, emphasizing the epistemic limitations facing political actors in designing the redevelopment process to achieve economic prosperity and the incentives this creates for rent-seeking.

Introduction

The Base Realignment and Closure (BRAC) process, which began in 1988, is credited with ending the political stalemate over military base closures during the 1970s and 1980s. BRAC introduced a framework of rules to guide closure and realignment decisions, including the establishment of an independent commission to evaluate the list of bases slated for closure or realignment, a fixed timeline for decision-making, and the stipulation that Congress can only accept or reject the approved list of base closures in its entirety. This new framework created a compromise between the discretion to close bases held by the Secretary of Defense and the legislation allowing Congress to resist specific base closures. Congressional resistance to closures had stopped all major base closures during the decade prior to the enactment of BRAC. Since the initial round in 1988, four subsequent BRAC rounds were completed in 1991, 1993, 1995, and 2005, resulting in the closure of over a hundred major military bases, with the property transferred to local communities for redevelopment.

Some scholars have noted that the design and outcomes of the BRAC process represent a triumph over the political incentives that typically undermine efforts to reduce government spending (Beaulier et al. 2011; Brito 2011). Indeed, the authorization of a BRAC round constrains an individual Congress member’s ability to resist specific closures. However, political economy issues have continued to influence the evolution of BRAC rules and post-closure redevelopment. The BRAC legislation delineates a complex system of rules that govern the property transfer and redevelopment process on closed bases which has been tailored to political interests.

Reliance on political processes to determine the reallocation of former military base resources presents two issues that we explore in this paper. The first is that reallocation through political mechanisms leads to a misallocation of resources. Post-closure base redevelopment involves taking the existing capital structure on a base and reallocating that capital for alternative uses. In the absence of competitive market prices during this process, political actors have no way of evaluating the success of redevelopment plans in satisfying the core economic problem—how to best use scarce resources among an array of possible alternatives. The entrepreneurial discovery process is further limited by the fact that redevelopment plans are locked-in, limiting the ability for adjustments in resource allocations to higher-valued uses through time.

The second issue is that the post-closure political process encourages rent-seeking behaviors. Interest groups who stand to benefit from base redevelopment do not compete for rights to implement their plans by outbidding their competitors in a competitive market setting. Instead, these groups compete by leveraging political connections. In the process, scarce resources are wasted, and the redevelopment process is unnecessarily delayed.

Our argument focuses on the economic problem at the core of redeveloping closed military bases—the opportunity cost of scarce resources. Redevelopment efforts certainly produce observable outcomes—e.g., shopping centers, residential construction, and other outputs. However, we emphasize that redevelopment through the political process fails to determine the opportunity cost of scarce resources among the range of possible uses. Therefore, this process cannot obtain a solution to the economic problem of discovering the highest-valued use of scarce resources. Here we follow Higgs’s (1992) analysis of the war economy where he notes that, “Economics is not a science of hammers and nails, or of production or consumption in the raw; it is a science of choice, and therefore of values” [p. 49]. Redevelopment planning through the political process replaces the valuations of consumers, reflected in competitive market prices, with the valuations of those planning.

Once a base closure is approved, the property transfer process—supervised by the military service responsible for the closed base—begins. In most cases, base property is not simply auctioned off with the rights to that property transferred to private parties. Instead, a political process governs base redevelopment from start to finish. Some forms of property transfer, such as Economic Development Conveyances (EDC) and Public Benefit Transfers (PBT), follow predetermined redevelopment paths with the intention of stimulating economic development or benefiting certain segments of the community. These rules incentivize redevelopment along predetermined lines which results in property being zoned for specific uses over many years.

The political nature of the resource allocation poses issues for promoting genuine economic development defined by open-ended (re)discovery of the best use of scarce resources. The absence of entrepreneurial evaluations based on competitive market prices, expected profit opportunities, and the guiding forces of profit and loss signals makes it impossible for policymakers to accurately judge the economic success or failure of their decisions. This issue implies a tendency for the misallocation of resources in the prescribed BRAC redevelopment process. Increasing predetermined outputs—e.g., utilities infrastructure, housing, and new roads—does not necessarily indicate, or ensure, genuine economic growth, which requires that scarce resource be (re)allocated to their highest-valued uses. Yet, this is the implicit assumption underpinning policies like EDC and PBT requirements.

While existing research has explored the political economy of base closure policies (Twight 1990; Stroup 1998; Beaulier et al. 2011; Brito 2011; Zullo and Liu 2017; Emrich 2021), our contribution lies in the analysis of the political economy during the redevelopment process. The existing literature has overlooked that mitigating political influences at the initial decision-making stage (the closure decision) does not eliminate the issue in subsequent stages. For example, Beaulier et al. (2011) present evidence that there is no detectable partisan pattern to the bases on the initial list of closures nor for the bases closed during the 2005 BRAC round. However, there is little reason to believe that political incentives and their influence over base closure decisions and subsequent redevelopment policies only operate along partisan lines or along the margin of the bases closed. Politicians continue to navigate base closure policy to safeguard their electoral interests, and the redevelopment process presents many opportunities for special interests to engage in rent-seeking activities.

There is extensive research, both by economists and by scholars in other disciplines, analyzing the effects of military base closures in the USA (Bradshaw 1999; Hooker and Knetter 2001; Thanner and Segal 2008; Cowan 2012; Hultquist and Petras 2012; Ashley and Touchton 2016; Touchton and Ashley 2019; Nickelsburg 2020; Clanahan 2021). Econometric and case-study based research in this area indicates that the economic impacts of base closures are less severe than anticipated (Bradshaw 1999; Hooker and Knetter 2001; Hultquist and Petras 2012). Research from scholars outside of economics tend to focus more on the social impacts such as disruptions to local communities once bases are closed (Thanner and Segal 2008; Cowan 2012; Touchton and Ashley 2019). Our contribution to this literature lies in understanding how the rules and regulations governing base redevelopment affect redevelopment outcomes in light of the opportunity cost of scarce resources.

Finally, we contribute to the literature on post-war conversion (Melman 1961, 1972, 1985; Benoit and Boulding 1963; Markusen and Yudken 1992; Higgs 1999). This literature focuses on economic conversion of military assets in the USA following World War II and the Cold War. Existing literature has not focused on the political economy of the BRAC process; we fill this gap.

The rest of the paper proceeds as follows. The next section provides background information on the BRAC process and the federal rules impacting the redevelopment process. Then, we explain the epistemic issues faced by policymakers during redevelopment, and how these issues are compounded by the difficulties of repurposing capital specific to military activities. The section that follows analyzes rent-seeking behavior during redevelopment using examples of bases closed during BRAC rounds in the 1990s and 2005. The final section concludes.

Background on the BRAC Process

Following World War II, the Secretary of Defense possessed sole discretion to close military bases; from 1960 to 1965 more than one thousand military bases (domestic and international) were closed (Touchton and Ashley 2019, pp. 24–25). Many communities relied on the economic activity supported by the existence of military bases and faced significant losses during this phase of rapid base closures, prompting a response from members of Congress. By 1977, Congress reigned in the power of the Secretary of Defense to close bases by requiring the Department of Defense to provide at least one-year notice of proposed base closures for installations employing 500 or more civilians, and by requiring the submission of impact reports covering the fiscal, economic, environmental, and operational effects of proposed closures (Goren 2011, p. 12). Though the Secretary of Defense continued to have formal discretion over base closures, these new requirements enabled individual members of Congress to resist proposed closures that would affect their constituents. As a result, there were no new base closures over the next ten years (Brito 2011; Touchton and Ashley 2019).

The deadlock in base closure decisions ended when Congress passed legislation authorizing the first round of a new process called Base Realignment and Closure (BRAC) in 1988. This legislation authorized the first BRAC round and established foundational features that were maintained throughout the four subsequent rounds over the next 17 years. Each round had an independent commission of experts to review the list of proposed closures and realignments, and Congress could only resist closures by rejecting the complete approved list through a joint resolution.

Brito (2011) argues that these features of the BRAC process eliminated the influence of individual politicians for three reasons. First, the BRAC commission’s members were independent experts who had the necessary knowledge to make informed decisions while lacking any direct interest in the outcomes (Brito 2011, p. 140). Second, the commission’s mission was discrete and clear—evaluating the list of bases recommended for closure or realignment according to specific criteria, amending the list as needed, and forwarding their recommendation for approval by the Secretary of Defense (Brito 2011, p. 141). Finally, the legislation removed the approval decision from the hands of Congress. After the commission made its recommendation, the approved list became law unless there was a joint resolution of rejection passed by Congress and signed into law (Brito 2011, pp. 142–43). This allowed members of Congress to avoid any of the blame for a particular base being closed as it was the commission’s decision, not theirs.

While the BRAC process successfully tied the hands of Congress and weakened (but did not entirely eliminate) the standard electoral incentives that would otherwise invite significant resistance to base closures, political involvement in the base closure process was not completely removed. Once members of Congress observed the outcomes of this first round of BRAC, the opportunity arose to change the process before allowing another round of closure. Congress passed the second piece of BRAC legislation in 1990 and authorized three more rounds. While members of Congress continued to have limited say in selecting bases for closure, amendments to the BRAC process enhanced their control over the disposal process for the bases selected.

The amendments included changes intended to limit the economic disruption that base closures caused to the constituents of members of Congress. As a result, federal involvement in the post-closure process expanded by authorizing discounted, or no cost, transfers of property to communities (e.g., Economic Development Conveyances), offering federal assistance to communities for planning and redevelopment, and by creating a base closure account that governed the use of revenues generated by base property sales (Lockwood and Siehl 2004, pp. 4–6). Furthermore, Congress ensured that the BRAC rounds occurred in non-election years (Lockwood and Siehl 2004, p. 6). These changes suggest that politicians did not see future BRAC rounds under the previous structure as providing sufficient protection from constituent backlash.

Congress introduced additional amendments to the legislation primarily affecting the property disposal process when the most recent BRAC round was authorized for 2005. These amendments enhanced property transfer considerations through Economic Development Conveyances (EDC) after federal screening. Under these amendments, if no other DOD component or federal agency has an approved request for closed military base property, the DOD is to consider property for an EDC.

Within local communities where a base is closed for redevelopment, BRAC legislation requires the formation of a Local Redevelopment Authority (LRA). Typically, a LRA is formed under the authority of the local government, and DOD regulations require that the LRA should have “broad-based membership, including, but not limited to, representatives from those jurisdictions with zoning authority over the property” (Mason 2013, p. 3). The LRA is the key body that works alongside the federal government in implementing the base redevelopment plan and in applying for an EDC (Mason 2013; Touchton and Ashley 2019).

EDCs differ from transfers where the sale of land and other property is negotiated between the DOD and recipient in that the transfer comes at a discount or no cost. An EDC also requires that the reuse of the base falls within a predetermined set of options including road construction, building rehabilitation, and historic property preservation, among other uses subject to approval (Department of Defense 2006a). To meet these requirements, LRAs must implement zoning regulations, which are enforced by local or state governments, to restrict the potential uses for former military bases. This will be elaborated upon later with the example of a base closure in San Diego.

Like the earlier changes to BRAC legislation, EDC requirements allowed for expanded political influence over base closure decisions for two reasons. First, EDC requirements created opportunities for politicians to pursue their own desired ends even if they were at odds with the interests of the DOD. One of the goals of base closures is to allow the DOD to free up funds being used for the operation and maintenance of bases with low strategic value and realigning bases to enhance capabilities. The sale of base property allows for some of this activity by providing new funds for the DOD to reallocate as it sees fit. The use of discounted or no cost conveyances, as is the case for EDCs, undermines the DOD’s ability to fully secure these funds. Second, elected politicians have a clear concern of constituent backlash in response to the economic costs of base closure. The creation of EDCs provides a cushion for communities against base closure as local governments do not have to incur the expenses to acquire and redevelop base property. Changes to BRAC policy that made EDCs more likely enhanced that cushion.

The redevelopment process that unfolds after BRAC decisions are approved includes numerous rules and regulations that govern the decision-making of local communities. Given that many of these decisions are made through political institutions, relying on feedback generated outside of private competitive markets, we can expect there to be significant issues with political actors’ ability to successfully allocate resources in a way to maximize their economic value, which is crucial for economic development. At the federal level, the issues of environmental cleanup, property disposal, and opportunities for federal assistance alter the incentives that local communities face and invite rent seeking from interest groups who have a stake in capturing the benefits of redevelopment. The sections that follow focus on these two issues.

Resource Allocation Issues

Conversion from military to civilian use has long been recognized as a difficult and costly process due to the specialization of capital for military use (Melman 1972). The preexisting capital structure will inform the potential profitable reuses of capital, but each plan will involve differing degrees of disposal or reuse (Lachmann 1978). The economic issue relevant to this context is whether the rules mandated by the BRAC process actually create conditions conducive to development, defined by the process of (re)allocating scarce resources to more highly valued uses. The implicit assumption in the design of these rules is that local communities can expect to not only avoid the losses associated with base closures but have an “opportunity to create new jobs, diversify the local and regional economy, satisfy public facility and service needs, and add once-exempt Federal real property to the tax base” (Department of Defense 2006b).

However, policymakers involved in military base redevelopment decisions face a knowledge problem in that the highest-valued allocation of resources is not given, but rather needs to be continuously discovered. “The solution to the economic problem”, Hayek (1948) noted, is “a voyage of exploration into the unknown, an attempt to discover new ways of doing things better than they have been done before. This must always remain so as long as there are any economic problems to be solved at all, because all economic problems are created by unforeseen changes which require adaptation” [p. 101]. Determining the “correct” reuse plan that will generate economic activity once a base is closed faces the same issues that many state governments face when attempting to attract firms to their states through targeted benefits (Coyne and Moberg 2015).

For instance, state governments commonly create programs designed to attract large firms to their state to promote economic activity. As is the case with base redevelopment, these targeted benefit programs are created through political means such that policymakers must judge which firms are the right ones for their state. Policymakers can examine firms’ financial statements and localities in their states in need of increased economic activity, but any decision made does not incorporate the true opportunity cost of resources used to attract those firms. Decisions affecting military base reuse face a similar problem in that, the redevelopment plans involved will necessarily involve a multitude of potential redevelopment options, however, without competitively-determined market prices, any comparison across plans for reuse can only be arbitrarily compared such that there are no “correct” redevelopment plans (Wagner 2016).

As Kirzner (1973) notes, “[w]hat drives the market process is entrepreneurial boldness and imagination; what constitutes that process is the series of discoveries generated by entrepreneurial boldness and alertness” [p. 73]. This “entrepreneurial boldness and imagination” in turn, is conditional on the institutional context within which economic activity takes place. Specifically, private property and free exchange are necessary complements to entrepreneurial discovery for the generation of economic knowledge. To the extent the market process is absent from these decisions, prices will not be the guiding force in decision making.

To understand how this matters for base closures, we first detail how the property disposal process mandated by BRAC restricts private property rights and free exchange. Then, we analyze two cases of military base redevelopment using this theoretical framework.

The Property Disposal Process

After a base is closed, in most cases property rights over the base land and facilities are not sold or otherwise transferred to market actors. Under BRAC rules, public auction is the last resort for property disposal and only a small percentage of property is transferred in this way (Government Accountability Office 1996; Congressional Research Service 2019). Instead, there are predetermined rules for property disposal which places discretion over planning into the hands of political actors. These rules influence the potential set of plans that will be selected from for base reuse.

The disposal process begins with the controlling military department (e.g., the Navy) considering alternative defense uses for the base being closed and then other federal agencies can petition for using the excess property (Government Accountability Office 1996). At this stage, base property can remain under the control of the federal government and there is no transfer of property rights to local governments or private parties. If there are no alternative federal uses, the excess base property is considered for a Public Benefit Transfer (PBT), Economics Development Conveyance (EDC), or both, conditional on application by the LRA (Department of Defense 2006a, pp. 50–69).

PBTs are a form of discount or no cost conveyance and prescribe redevelopment intended to meet specific public benefit use goals (Mason 2013, p. 6). Public benefit uses are determined in coordination with state agencies, federal agencies, or nonprofit organizations. The outcomes are typically investments, such as airports, parks, historic monuments, or wildlife conservation (Department of Defense 2006a). Once the LRA and a sponsoring federal agency agree upon a public benefit use for a PBT, the agreement is binding, locking in the plan for redevelopment. Similarly, the EDC requires that revenues from any future sale of land acquired through an EDC or leases on EDC land be used to support economic redevelopment for at least seven years (Mason 2013, p. 8). Investments that support economic redevelopment are predefined and include but are not limited to road construction, utility construction, police and fire protection facilities and other public facilities, building rehabilitation, and historic property preservation (Mason 2013, p. 10).

When the LRA receives land under these conditions, there are strong incentives to create a redevelopment plan aligned with these objectives, or they risk having to repay the DOD for the discount or full cost of land received. The prescriptive characteristics of EDCs and PBTs steer resources toward outcomes that are predetermined through the political process and restrict the market process, which would otherwise allow individuals to discover the reuse of closed military bases that creates the most value over time.

In limited cases where a PBT or EDC is not pursued, the military department enters a negotiated sale usually with a state or local government (Department of Defense 2006a). Negotiated sales are only entered into if the Department of Defense determines there would be “a public benefit, which would not be realized from competitive sale or authorized public benefit conveyance, will result from the negotiated sale” (Department of Defense 2006a, p. 69). The alternative of a competitive sale is only considered when an agreement is reached between the Department of Defense and the LRA (Department of Defense 2006a, pp. 67–68).

At each step of the disposal process, political actors must make decisions about reuse, including how and to whom the property will be disposed. These steps operate under institutions that are, at best, only indirectly informed by feedback mechanisms in the market. When property is transferred to a local or state government as would be the case for a PBT, EDC, or negotiated sale, similar problems arise. For instance, to the extent reuse leads to for-profit activity, there will be market feedback regarding that particular activity. But the restrictions on use and lack of private property rights constrains how that property can be reallocated over time.

As a thought experiment, consider a situation where the policy for disposing of base property for reuse began with a public auction. In this situation, assume that the government holds an open and competitive auction for the base land and other assets, with entrepreneurs bidding to take control of the resources and determine reuse. The entrepreneur who wins the auction gains property rights to the base assets and must now plan for redevelopment. There are two key differences between the hypothetical auction and the redevelopment process under BRAC rules.

First, in the hypothetical auction, the entrepreneur must either bet her own resources or convince other investors to bet their resources on the potential success of their plan. This incentivizes prudence (“skin in the game”) while creating a clear link between resource use and the residual claimant (Lavoie 1986). Second, the transfer of property rights grants the recipient discretion over resource use and allows those rights to be traded in the future.

A shopping center serves as an illustrative example. It may be the case that the shopping center is a worthwhile investment that will produce economic profits. If it does not, then the entrepreneur and any other investors will take losses, forcing them to relinquish control over the assets to recoup some portion of their investment. While a loss has occurred and the redevelopment has failed temporarily, releasing the resources now means another entrepreneur can attempt to implement their own plan. Perhaps a portion of the shopping center can be redeveloped as office buildings, residential housing, or commercial business space. The specifics of the new plan are less important than the possibility for reuse without additional restrictions. Through an ongoing process of contestation and reallocation, resources will tend to move away from entrepreneurial plans making losses and toward those earning profits. This process though is only possible given that entrepreneurs have well-defined property rights that are not subject to restrictions on use and exchange.

Base Redevelopment at the Naval Training Center and the Naval Air Station

The Naval Training Center (NTC) in San Diego, California, typically viewed as an example of successful base reuse, illustrates how the redevelopment process unfolds under BRAC regulations and outside the market process (Touchton and Ashley 2019). NTC was slated for closure during the 1993 round of BRAC, one of the later rounds in which base property was eligible for an EDC. Once closure was announced, the City Council of San Diego formed the Local Redevelopment Authority (LRA) that would oversee the planning for redevelopment while working with other community stakeholders (Rick Planning Group 2001). With the city council as LRA, the local government would have ultimate authority over the redevelopment of NTC. To this end, the LRA and community members spent the next five years planning for reuse.

The final reuse plan for NTC included “[m]ixed-use redevelopment with residential, commercial, educational, and recreational uses—housing, schools, shopping centers, parks, and a historic arts district” (Touchton and Ashley 2019, p. 87). Under this plan, the local government qualified for most of the base to be conveyed under an EDC and a smaller portion under a PBT sponsored by the Department of Health and Human Services and the Department of the Interior (Rick Planning Group 2001, p. 35).

The political structure of the LRA and the nature of property conveyance meant that the redevelopment of NTC faced significant restrictions over property use. Each sub-area of NTC including residential, education, and open space had a fixed amount of land dedicated to that use before any redevelopment occurred. The reuse plan approved by the LRA implemented a set of zoning regulations that restricted use of base land to those determined within the plan for the foreseeable future (Rick Planning Group 2001). These zoning regulations limited opportunities for contestation and reallocation among alternative uses. Housing, schools, and shopping centers are sure to generate some economic activity. What planners cannot anticipate though is the counterfactual—whether economic activity would be more robust under an alternative, and unknown, redevelopment path. The economic knowledge necessary to make this determination even after the project is in motion is not generated as there is no competitive pressure among entrepreneurial plans nor market prices to reveal the value consumers place on the selected outcomes.

One counterargument is that, given the transactional nature of many steps during the base redevelopment process, political actors do in fact have access to prices to guide their decision making. The issue though is that these prices are inherently different than prices in a competitive private market setting. In a pure market setting, prices are determined by the relative valuations of both demanders and suppliers, each of who are property rights holders who stand to gain or lose from their decisions (Wagner 2016). In the political setting, in contrast, only one side of the transaction occupies the position of a true property holder. Even in situations where LRAs work with firms from the private sector to implement redevelopment plans, market prices fail to be generated as prices are determined by government fiat (Aligica et al. 2019).

For instance, in the case of NTC, the LRA decided to work with a master developer in the private sector for much of the demolition, rehabilitation, and new construction across the site (Touchton and Ashley 2019). Presumably, this developer would only enter into the agreement under the expectation of making a profit. However, the agreement between the City of San Diego and the master developer only represents rights to the flows of revenues and costs generated at NTC after development while still restricting any future use, distorting the valuation of land and other property. If particular potential uses are not an option through ex ante rules and regulations, there is no way to determine whether those alternatives may generate more economic value.

In the 20 years following the closure of NTC, the reuse plan has largely been implemented. We cannot know for certain exactly how redevelopment would have looked under the alternative produced by the unhampered market process, but we can identify areas in which the use restrictions on former base property present distortionary effects. According to the precise plan for reuse at NTC, 37 acres of the former base site was to be developed for residential housing (Rick Planning Group 2001). This area was zoned specifically for residential use including single-family and multi-family units. However, there were also additional restrictions on the height of these buildings. Single-family dwellings were not to exceed 30 feet in height and multi-family dwellings could not exceed 36 feet in height (Rick Planning Group 2001, p. 45). Additionally, the majority of the 37 acres was to be developed for single-family dwellings. The use restrictions and height constraints present a limitation for the master developer or other entrepreneurs to respond to changing economic conditions.

For instance, in the years following the adoption of the NTC reuse plan there was a housing market boom leading to higher prices, a trend that would continue following a decline in housing prices between 2006 and 2009 (Landvoigt et al. 2015; FRED 2023). Glaeser et. al (2008) show that in areas where housing supply is more elastic, these price run-ups are less likely. Their results suggest that if use restrictions in the residential areas of NTC were less stringent, we would expect an increase in the supply of housing as prices rise. However, entrepreneurs are unable to freely shift to more multi-family dwellings or larger residential buildings, for example, as any changes to the reuse plan must go through approval by the LRA. This is not to imply that more flexible zoning on NTC would alleviate broader housing problems in San Diego, but rather that entrepreneurs’ response to changing conditions are limited when use is planned and enforced through political means.

The redevelopment process at NTC highlights how BRAC rules can influence the potential reallocation and use of former base property. But disruptions to the market process can also arise before property is transferred to an LRA. Consider two possible cases.

The first relates to how environmental remediation is dealt with on closed bases. The National Environmental Protection Act (NEPA) and other regulations enforced by the Environmental Protection Agency (EPA) provide the detailed framework for how the federal government and local communities must implement environmental remediation on closed bases (Goren 2011). Military bases are often used to test munitions or otherwise engage in activities that lead to environmental damage (Flynn 2005; Goren 2011; Congressional Research Service 2019; Touchton and Ashley 2019). The potential risks posed by environmental damage depends on the specific reuse of a closed base. For example, if apartments or other residential units were built on a closed military base, the standards for remediation would be much higher than if reuse was aimed at an industrial park (Environmental Protection Agency 2001).

There are significant costs to environmental remediation such that these standards will have an impact on the valuations that different actors place on plans for reuse. Determining whether the resource cost of remediation in the present is worth potential future benefits is a necessary step in creating economic development after base closure. The issue with political allocation is that no decision maker is fully internalizing the costs of remediation. The federal government provides funding while local governments must also shoulder some of the financial burden of remediation. The implication is that it is more likely that these political actors will implement plans that require higher remediation costs than market entrepreneurs would, since the former can shift some of the costs to other parties while the latter fully internalizes the costs and benefits of their decision.

Second, policies such as EDCs and PBTs are preferred by local and state governments due to their discount or zero cost of conveyance that limit potential fiscal problems. These policies also incentivize redevelopment plans that can affect the ultimate level of remediation required by regulations. EDCs and PBTs commonly prescribe residential, retail, and other uses that are intended to generate economic activity and with it more people around environmental hazards. These sort of redevelopment plans will require higher levels of remediation to comply with environmental regulations. This can mean much higher levels of remediation than would otherwise be the case if entrepreneurs (who internalize the costs of remediation) were left to determine the best reuse of a closed military base. While a residential development on a closed base may generate substantial revenues, an entrepreneur would also directly consider the costs associated with remediation to make residential development possible. Furthermore, remediation necessarily pulls resources from the private sector and political actors cannot gauge the opportunity cost of those resources that may be used in other areas whether for environmental remediation or for another use altogether.

The closure and redevelopment of the Naval Air Station in Alameda, California provides an example of the problems posed by environmental remediation and holding out for discount or no cost conveyances. Like NTC, the Naval Air Station (NAS) at Alameda was closed during the 1993 round of BRAC with the local government in Alameda formed an LRA to work on planning for redevelopment shortly after (Touchton and Ashley 2019, p. 108). The plan adopted by the LRA at Alameda in 1996 included elements of reuse similar to those in San Diego, including the intention to apply for an EDC and develop housing, an educational use area, parks, and historic areas (Alameda Reuse & Redevelopment Authority 1996). However, the plan was significantly delayed after the NAS was declared a Superfund site by the EPA in 1999. After being designated a Superfund, the EPA required that the Navy rehabilitate the site for planned future use before any property could be conveyed to the LRA (Touchton and Ashley 2019, p. 107). While the regulations from the EPA should be viewed as separate from the BRAC process, it presented an issue for reuse under BRAC regulations.

The LRA had control over the creation and implementation of a reuse plan and consisted of members of political parties who did not internalize the costs of delaying reuse or environmental remediation as required by the EPA. Under these conditions, the LRA maintained much of its original reuse plan, including the intended application for an EDC, as its members were willing to endure the complications required for implementation. In an alternative institutional context, where market actors had property rights and control over the planning process, it is likely that other uses outside of residential, high-traffic development would be chosen as the levels of remediation required by the EPA are determined, in part, by anticipated future use (Environmental Protection Agency 2001). Significant delays to redevelopment would pose a direct cost on private decision makers, whereas the politically controlled LRA found it in their interest to wait more than ten years for base property to be conveyed by the Navy to take advantage of the EDC.

To be clear, the discussion in this section does not imply that base redevelopment efforts will fail in the sense that the LRA will not produce any redevelopment outcomes. Whether it is shopping centers, residential districts, universities, or wildlife preservations, LRAs typically implement a redevelopment plan. However, this confuses the production of outputs with the economic problem which is how to best use scarce resources among a number of competing, but technologically feasible alternative uses. Producing outputs is not the same thing as creating economic development which requires using scarce resources in a way that maximizes their value from the perspective of consumers.

Political Economy Issues

As discussed (see, the second section), political economy issues affect the BRAC process despite its success in constraining political influence over which bases are closed. This is not only observed in the amendments to BRAC legislation themselves, but also in the downstream effects of those rules on the redevelopment process. LRAs are typically structured in a way that local or state governments have discretion over the redevelopment plan. In crafting the redevelopment plan, the LRA allows interested parties to provide their input and vie for their preferred use of resources. The LRA necessarily makes decisions over what to include, and what not to include, through a non-market process based on predetermined development goals or other metrics intended to forecast the benefits to the local community, potential tax revenues, and the budget. Under these conditions, the redevelopment timeline is drawn out at the cost of reuse in the present while encouraging rent-seeking from various interest groups.

Rent-seeking refers to the use of scarce resources to secure transfers of existing resources through political processes. Rent-seeking is socially wasteful because “[t]hese expenditures add nothing to the social product (they are zero-sum at best), and their opportunity cost constitutes lost production to society” (Tollison 1982, p. 576). This undermines economic development as rent-seeking results in economic stagnation through unproductive entrepreneurship (Olson 1982; Baumol 1990). This means that where development-oriented policies result in rent-seeking, the economic outcomes may run counter to the stated goal of the policies.

Under these circumstances, interest groups can leverage influence, such as political connections, to increase their chances of securing rights over redevelopment. This political competition can lead to wasteful outcomes in two distinct ways. First, while successful rent seekers may secure benefits for themselves, overall economic wellbeing can be harmed. Second, clashes between competing interests can lead to delays in redevelopment that otherwise would not occur if property were instead transferred through public auction. The constraints that the rules and regulations of redevelopment place on decision makers only compound this issue.

As a result of the increased federal involvement in the BRAC process, politicians at the federal level can work with the LRA to influence outcomes and concentrate benefits among constituents and other political actors to gain their support. The costs of those decisions are then dispersed across taxpayers at the state and federal levels. The establishment of California State University Monterey Bay (CSUMB) on the former Fort Ord military base is an illustrative example of how these dynamics play out.

Fort Ord was an Army base located in Monterey County California slated for closure after the 1991 BRAC round. The base officially closed in 1994 and faced significant hurdles to redevelopment due to overlapping jurisdictions of local, regional, and state authorities (Touchton and Ashley 2019, p. 97). To address these governance concerns, the Fort Ord Reuse Group was formed “to avoid political battles, government redevelopment processes, and incorporate different authorities’ interests into policy decisions” (Touchton and Ashley 2019, p. 98).

Although environmental remediation needs delayed the full conversion of the base, the first major reuse project started with plans to establish a new campus within the California State University (CSU) system. At the time of closure, the CSU system was facing budget reductions making the prospect of federal assistance to establish a new campus especially attractive (Chance 1997). However, it was not clear there was a need for an additional CSU campus to meet California’s higher education needs at the time.

The rules for property transfer under BRAC created strong incentives for policymakers in California to develop a reuse strategy involving the creation of the new university campus. Prior to the announcement of Fort Ord’s closure, there were no plans within the California state government of establishing a new campus around Monterey Bay (Chance 1997). It was not until the prospect of receiving land and buildings at no cost through a Public Benefit Transfer was made apparent through the base closure that the state began to take an interest. Members of the Reuse Group including state representatives and individuals occupying high-level positions within the CSU system saw the PBT as an opportunity for quick success in Fort Ord’s partial reuse that would come at little direct cost to the state.

The Fort Ord Reuse Group applied for a PBT, justified by the forecasted educational benefits that a new university campus would provide for the local community, which allowed for the Department of Education to sponsor the transfer. The PBT, if granted, would provide CSU with enough land for a new campus at no cost to the state. Members of the CSU system and state senators, who were also part of the Reuse Group, began leveraging political connections to secure federal assistance for the plan (Chance 1997; Touchton and Ashley 2019).

While the Reuse Group stood to gain from the PBT being granted, the DOD tried to deny its approval as the agency would lose out on revenues from land sales. This resistance incentivized Congressmen representing the district to ensure that both the PBT and additional funds were granted for the new campus. Success would make a rapid transition to reuse more likely and provide benefits to their constituents.

One of the politicians who worked to facilitate extra funding for the new CSU campus was Congressman Sam Farr of California’s 17th district. Writing to the Chairman of the House Subcommittee on Defense Appropriations in July 1993, Farr, along with Congressman Ronald Dellums, requested that the $25 million appropriation for the first phase of construction on CSUMB be given special consideration because of the significant benefits it would afford to the local community (Dellums and Farr 1993). Around the same time, the Reuse Group was granted its PBT and, by November of that same year, Congress approved $15 million to begin conversion of Fort Ord to a university campus (Chance 1997). At this point, a portion of Fort Ord was locked in to be reused as a new university campus.

The rapid planning and coordination for this project across levels of government seems to indicate that this is a case of success. However, it is important to consider whether the interest groups involved were truly implementing a plan that would benefit the surrounding community rather than their own interests. A legislative analyst’s report drafted in 1994 (before the campus opened) suggests that the new campus was not only unnecessary to meet California’s higher education needs, but also that the per student cost would be much higher than if students were educated on existing CSU campuses. Specifically, the report found that CSUMB was not necessary to meet future enrollment projections until at least the late 2000s (Chance 1997). Preexisting plans for expansion on other CSU campuses would have been sufficient to accommodate rising enrollments. The report concludes that the promise of federal support took precedent over the state’s legislative goals (Chance 1997).

Furthermore, the establishment of a new public university campus also created a long-run issue. As discussed above, zoning and other property-use restrictions can limit the potential for former base property to be reallocated to alternative uses once a reuse plan is implemented. This issue is further compounded in the context of purely public reuse projects, such as a public university, due to political incentives.

Suppose, for instance, that the CSUMB campus became a financial failure because of persistently low enrollment or other issues. In this situation, politicians at the state level would face weak incentives to allow the university to fail and to sell off land and facilities for other uses. A move like this would risk angering constituents and potentially losing a future election. There are instead much stronger incentives to continue to subsidize the university to avoid any financial shortfalls that might result in a shutdown. In this scenario, there is a persistent distortion in the reallocation of resources due to the political pressures created by the initial reuse decision.

The establishment of CSUMB shows how interest groups, such as the CSU system and the Reuse Group more generally, avoided the process of bidding for former base land and instead competed for control through leveraging political connections. Politicians, such as Congressman Farr, also took the opportunity to speed up the redevelopment process and satisfy constituents in their districts. Furthermore, as the new CSU campus threatened enrollment in surrounding community colleges and other educational institutions, they too engaged in bargaining with CSU to create rules regulating enrollment levels on the new campus and student transfer agreements (Chance 1997). The cost of such actions is not only in the resources used to directly lobby the government to create a new university campus, but also in shifting the redevelopment process away from the desires of private consumers through time.

There are certainly some benefits derived from a new university campus as there is from almost any investment; but focusing on the observable outcomes overlooks the opportunity cost—how the former base land could otherwise be used in the present and future. The incentives created through the PBT rules encouraged redevelopment efforts that were unproductive yet beneficial to some political decision makers. The redevelopment experience at Fort Ord also demonstrates how politicians have responded to the constraints presented by the BRAC process by focusing more on redevelopment outcomes given their lack of discretion over the initial base closure decision.

When various interest groups participate in redevelopment decision making, coordination is not the only possible outcome. Diverse and conflicting interests can create situations where redevelopment projects become more complex, or in the worst case slow down the planned redevelopment process entirely. For instance, Ashley and Touchton (2016) provide evidence of a positive relationship between more “ambitious” redevelopment projects and an LRA serving varied stakeholders. They argue that those results are indicative of the fact that the number of stakeholders in a redevelopment project are necessary to overcome the complex web of regulations that govern base redevelopment. However, there is another way to interpret this evidence; it is more likely that closed bases which attract varied stakeholders end up with more complicated, ambitious redevelopment projects as each group competes for their slice of the benefits from the redevelopment project.

Furthermore, increasing the number of interest groups places more demands on the nature of the redevelopment project which can mean more extensive environmental remediation and veto points that slow down the process. For instance, the Naval Air Station at Alameda, discussed in the previous section, which was set for closure during the 1993 BRAC round did not have land transferred and a redevelopment plan in place until 2013 (Touchton and Ashley 2019). The local community in Alameda resisted efforts by the redevelopment group to work with a master developer to implement their plan (Johnson 2015). The conflicting interests across groups created a stalemate that lasted over a decade for redevelopment.

Similarly, it took more than a decade to begin redevelopment at Fort Ritchie in Maryland, which was slated for closure in 1998 (Thanner and Segal 2008). Thanner and Segal (2008, p. 673) note that the local community surrounding Fort Ritchie had “no formal governing body at the community level” such that the responsibility of forming the LRA to govern redevelopment at Ritchie was given to the Washington County Commission. The Washington County Commission created an LRA “primarily composed of area business leaders” and, “was not democratically elected, as all members were appointed by the Commission, a commission that itself was composed of commissioners who were elected by a wider geographical area and who did not share the views of the small community around Ritchie” (Thanner and Segal 2008, p. 673). This situation created tensions between the interests of the community, which had previously relied on the base as a centerpiece in their lives, and the interests of the firms making up the LRA. The clash of these interests ultimately delayed the start of the redevelopment process.

Although not all instances of redevelopment are as extreme as these two cases, it is common across base redevelopment projects for the process to take years. Between the property disposal process itself, creating and implementing a redevelopment plan, dealing with any necessary environmental remediation, and the potential for overlapping jurisdictions, hold ups are the norm. For instance, the first phase of redevelopment on the Naval Training Center in San Diego, which closed in 1993, was not completed until 2007 (Touchton and Ashley 2019). Similarly, despite the rapid establishment of the CSU campus on Fort Ord after closure in 1991, environmental issues and disputes over redevelopment rights delayed further redevelopment. Agreements for the financial responsibility of environmental remediation were not completed until 2007, when the Army officially transferred a portion of land to the Fort Ord Reuse Authority while maintaining control of the remaining land for remediation (Touchton and Ashley 2019, p. 104).

For all five rounds of BRAC going back to 1988, there were tens of thousands of acres slated for disposal which presumably were to be transferred for reuse. However, delays, such as those described above, place limitations on reaching that goal. As of 2017, there remained over 70 thousand acres of base land that had yet to be disposed, representing around 19 percent of the total acreage of closed bases over the five rounds (Congressional Research Service 2019). Even in light of the knowledge problem and political incentives pervasive in the redevelopment process, land that is not disposed of at all may represent a worse outcome since potentially valuable resources are left idle.

These hold-up problems and the delays they cause are a direct result of the structure of the redevelopment process. When individuals compete for control over resources via political means, opportunities are created for individuals in well-organized groups to halt the process for significant periods of time. Delays in redevelopment come at the cost of idle resources. However, even in cases when redevelopment occurs more rapidly, rent-seeking behavior can create waste in the form of the scare resources used to secure the transfer of existing resources, which may end up in inefficient uses relative to the counterfactual.

Conclusion

Our analysis has three implications. First, base redevelopment policy, as currently structured, cannot meet its stated goal of promoting economic prosperity after base closure. While the closure of military bases presents an opportunity for resources to be freed up from government use, policymakers lack the economic knowledge to ensure genuine economic growth. Without entrepreneurial competition guided by market prices and disciplined by market-determined profit and loss, policy planners lack the economic knowledge to determine which reuse projects to undertake, or how to undertake them to maximize efficiency.

Further, the control that LRAs have over establishing redevelopment plans creates a tendency for the initial reuse project to be locked in for the long run. This feature of military base redevelopment places heavy restrictions on any potential reallocation of resources through time, a key feature of efficient markets. Investments in residential, commercial, or retail redevelopment projects all face some reallocation costs regardless of the institutional context. However, the legal and regulatory restrictions under BRAC-style redevelopment planning increase these costs further, making the prospect of reallocation less likely. Observable redevelopment outcomes are fundamentally different from economically value-added resource uses. The former are the result of the choices of policymakers with decision-making rights, while the latter entails private entrepreneurs continuously learning the opportunity cost of scarce resources across alternative uses and adapting accordingly.

Second, base repurposing hinges on a political process where interest groups compete not by offering the highest market bid for reuse rights, but rather through waste-generating rent-seeking activities. Interest group competition is wasteful both because of the resources expended to secure base assets and because of the increased likelihood of delaying reuse projects. As policies encourage redevelopment along prespecified margins, such as residential housing—which presents opportunities for local governments to receive land at a discount or no cost—this creates a tendency for longer timelines for environmental remediation at significant resource cost. Those making these decisions do not internalize these costs as taxpayers foot the bill. Resources are simply being shifted to base redevelopment efforts rather than generating new wealth, undermining the stated goal of creating economic prosperity.

This leads to a final implication related to an alternative approach to base redevelopment. Public auctions of military base land and assets would allow market entrepreneurs to compete over these resources and make decisions for redevelopment informed by expected profit and loss. Through this process, market prices would guide economic decisions, allowing for a more accurate economic assessment of feasible projects. Under a public auction there would be a transfer of property rights from the federal government to private actors. This arrangement would also allow for the future sale of property rights to other parties, creating an environment conducive to resources reallocation through time. An open public auction would also constrain rent-seeking opportunities, limiting the waste that is generated under current policies. In doing so, this policy change would help avoid the knowledge problems and perverse political incentives discussed in this paper, while empowering people to foster economic development.

Acknowledgements We would like to thank Abigail Hall and two anonymous referees for useful feedback and suggestions.

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BibTeX

@article{reilly2025military,
  author = {Chandler S. Reilly and Christopher J. Coyne},
  title = {The Political Economy of Military Base Redevelopment},
  journal = {Eastern Economic Journal},
  year = {2025},
  volume = {51},
  pages = {7-26},
  doi = {10.1057/s41302-024-00277-2},
}