The economics behind modern drone defence
Paolo Surico argues that cheaper, scalable interceptors and smarter procurement are reshaping air defence strategy
Writing in the Financial Times, Paolo Surico, Professor of Economics at London Business School, highlights a defining challenge in modern warfare: the economics of interception. With Iranian-made Shahed drones costing roughly $30,000, relying on missile interceptors that cost many times more is financially and strategically unsustainable. Surico notes that countries confronting large-scale drone attacks are therefore studying Ukraine’s response, which combines layered air defence with rapid innovation and the deployment of far cheaper, mass-produced interceptors alongside high-end systems.
The deeper lesson, he argues, concerns how defence innovation is organised. Evidence from recent conflicts shows that effectiveness depends less on the size of defence budgets than on procurement design. Clear operational missions, faster testing cycles, openness to new entrants and closer links to commercial supply chains can dramatically shorten development times and reduce costs. In an era defined by drones and mass production, strategic advantage will increasingly depend not only on technological sophistication but also on the ability to innovate quickly and manufacture at scale.
Further research Surico’s wider research examines how defence spending can deliver long-term economic benefits when it is directed toward research and development rather than traditional procurement. His paper The Long-Run Effects of Government Spending shows that shifts in public spending toward R&D during defence build-ups can boost innovation, private investment and productivity over time.Related work and analysis:
The Long-Run Effects of Government Spending (American Economic Review): https://juanantolindiaz.com/docs/ADS_AER2025.pdf
LBS analysis on defence spending and productivity: https://www.london.edu/think/defence-spending-fuels-innovation-but-not-how-you-think
LBS research on defence innovation and growth: https://www.london.edu/news/professor-surico-defence-spending-could-spur-innovation-if-europe-gets-it-right